Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fees Schedule, 46315-46320 [2023-15270]
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Federal Register / Vol. 88, No. 137 / Wednesday, July 19, 2023 / Notices
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in general, and furthers the objectives of
Section 6(b)(4) of the Act 12 in
particular, in that it is an equitable
allocation of reasonable dues, fees, and
other charges among its members and
issuers and other persons using its
facilities. The Exchange also believes
the proposal furthers the objectives of
Section 6(b)(5) of the Act 13 in that it is
designed to promote just and equitable
principles of trade, 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 and is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers.
The Exchange believes the proposed
change to the exchange groupings of
options exchanges within the routing
fee table furthers the objectives of
Section 6(b)(4) of the Act and is
reasonable, equitable and not unfairly
discriminatory because the proposed
change will continue to apply in the
same manner to all Members that are
subject to routing fees. The Exchange
believes the proposed change to the
routing fee table exchange groupings
furthers the objectives of Section 6(b)(5)
of the Act and is designed to promote
just and equitable principles of trade
and is not unfairly discriminatory
because the proposed change seeks to
recoup costs that are incurred by the
Exchange when routing Priority
Customer Orders to away markets on
behalf of Members and does so in the
same manner for all Members that are
subject to routing fees. The costs to the
Exchange to route orders to away
markets for execution primarily
includes transaction fees and rebates
assessed by the away markets to which
the Exchange routes orders, in addition
to the Exchange’s clearing costs,
administrative, regulatory and technical
costs. The Exchange believes that the
proposed re-categorization of certain
exchange groupings would enable the
Exchange to recover the costs it incurs
to route orders to the Nasdaq MRX
options exchange. The per-contract
transaction fee amount associated with
each grouping approximates the
Exchange’s all-in cost (plus an
additional, non-material amount) to
execute the corresponding contract at
the corresponding exchange.
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. The
Exchange’s proposed re-categorization
of certain exchange groupings is
intended to enable the Exchange to
recover the costs it incurs to route
orders to away markets, particularly
Nasdaq MRX. The Exchange does not
believe that this proposal imposes any
unnecessary burden on competition
because it seeks to recoup costs incurred
by the Exchange when routing orders to
away markets on behalf of Members and
notes that at least one other options
exchange has a similar routing fee
structure.14
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
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)(ii) of the Act,15 and Rule
19b–4(f)(2) 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 shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
PEARL–2023–30 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
14 See
supra note 4.
U.S.C. 78s(b)(3)(A)(ii).
16 17 CFR 240.19b–4(f)(2).
12 15
U.S.C. 78f(b)(4).
13 15 U.S.C. 78f(b)(5).
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00:36 Jul 19, 2023
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–PEARL–2023–30. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–PEARL–2023–30 and should be
submitted on or before August 9, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023–15264 Filed 7–18–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97902; File No. SR–CBOE–
2023–033]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend its Fees
Schedule
July 13, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
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Federal Register / Vol. 88, No. 137 / Wednesday, July 19, 2023 / Notices
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 30,
2023, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’), filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
its Fees Schedule. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/
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, effective July 3, 2023.
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XSP Fees
The Exchange first proposes to adopt
and amend certain fees related to
transactions in Mini-SPX Index (‘‘XSP’’)
options. Specifically, the proposed rule
changes amends and adopts certain fees
for XSP in the Rate Table for All
Products Underlying Symbol List A, as
follows:
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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• Amends fee code XC, appended to
all Customer (capacity ‘‘C’’) orders in
XSP that are for less than 10 contracts
and assesses no charge, to provide a
rebate of $0.13 per contract.3
• Amends fee code CC, appended to
all Customer (capacity ‘‘C’’) orders in
XSP that are for greater than or equal to
10 contracts and assesses a fee of $0.04
per contract, to assess a fee of $0.07 per
contract.
• Adopts fee code MC, appended to
all Market-Maker (capacity ‘‘M’’) orders
in XSP that are contra customer and
assesses a fee of $0.15 per contract.
• Amends fee code MX, currently
appended to all Market-Maker (capacity
‘‘M’’) orders in XSP and assesses a fee
of $0.045, to apply to orders contra to
non-customers and to assess a fee of
$0.09 per contract.
• Amends fee code XF, appended to
all Clearing Trading Permit Holders
(‘‘TPHs’’) (capacity ‘‘F’’) and NonClearing TPH Affiliates (capacity ‘‘L’’)
(collectively, ‘‘Firms’’) orders in XSP
and assesses a fee of $0.06, to assess a
fee of $0.13 per contract.
• Amends fee code XB, appended to
all Broker-Dealer (capacity ‘‘B’’), Joint
Back-Office (capacity ‘‘J’’), Non-TPH
Market-Maker (capacity ‘‘N’’), and
Professional (capacity ‘‘U’’)
(collectively, ‘‘Non-Customers’’) orders
in XSP and assesses a fee of $0.08 per
contract, to assess a fee of $0.17 per
contract.
Customer Volume Incentive Program
The Exchange proposes to amend the
Customer Volume Incentive Program
(‘‘VIP’’). The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 options venues to which market
participants may direct their order flow.
Based on publicly available information,
no single options exchange has more
than 17% of the market share.4 Thus, in
such a low-concentrated and highly
competitive market, no single options
exchange possesses significant pricing
power in the execution of option order
flow. The Exchange believes that the
ever-shifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow, or discontinue to
reduce use of certain categories of
products, in response to fee changes.
Accordingly, competitive forces
constrain the Exchange’s transaction
fees, and market participants can readily
trade on competing venues if they deem
pricing levels at those other venues to
be more favorable. In response to the
competitive environment, the Exchange
offers tiered pricing in its Fees
Schedule, like that of other options
exchanges fees schedules,5 which
provides TPHs opportunities to qualify
for higher rebates or reduced fees where
certain volume criteria and thresholds
are met. Tiered pricing provides an
incremental incentive for TPHs to strive
for higher tier levels, which provides
increasingly higher benefits or discounts
for satisfying increasingly more
stringent criteria.
For example, under the VIP, the
Exchange credits each TPH the per
contract amount set forth in the VIP
table for Public Customer (origin code
‘‘C’’) orders transmitted by TPHs (with
certain exceptions) 6 and executed
electronically on the Exchange,
provided the TPH meets certain volume
thresholds in a month; volume for
Professional Customers and Voluntary
Professionals (‘‘Professional
Customers’’) (origin code ‘‘W’’), BrokerDealers (origin code ‘‘B’’), and Joint
Back-Offices (‘‘JBO’’) (origin code ‘‘J’’)
orders are counted toward reaching
such thresholds.7
The VIP offers both rates for Complex
and Simple orders. The VIP provides
however, that a TPH will only receive
the Complex credit rates for both its
Complex AIM and Non-AIM volume if
at least 38% of that TPH’s qualifying
VIP volume (in both AIM and Non-AIM)
in the previous month was comprised of
Simple volume. If the TPH’s previous
month’s volume does not meet the 38%
Simple volume threshold, then the
TPH’s Customer (C) Complex volume
will receive credits at the Simple rate
only (i.e., all volume, both Simple and
Complex, will receive credits at the
applicable Simple rate). The Exchange
proposes to reduce the 38% threshold to
32%, for Tiers 1, 2, and 3 (the 38%
threshold will continue to apply to Tiers
4 and 5). The proposed change is
designed to increase the amount of
volume TPHs provide on the Exchange
3 The Exchange also proposes to update
corresponding Footnote 9 to reflect Customer orders
in XSP for less than 10 contracts will receive a
rebate (instead of no charge).
4 See Cboe Global Markets U.S. Options Market
Volume Summary (June 28, 2023), available at
https://markets.cboe.com/us/options/market_
statistics/.
5 See e.g., NASDAQ Stock Market Rules, Options
Rules, Options 7 Pricing Schedule, Sec. 2 Options
Market—Fees and Rebates, Tiers 1–6; see also NYSE
Arca Options, Fees and Charges, Customer Posting
Credit Tiers in Non-Penny Issues.
6 See Cboe Options Fees Schedule, Footnote 36.
7 See Cboe Options Fees Schedule, Volume
Incentive Program.
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and further encourage them to
contribute to a deeper, more liquid
market, as well as to increase
transactions and take such execution
opportunities provided by such
increased liquidity, while implementing
an incremental incentive for TPHs to
strive for the highest level. The
Exchange believes the proposed change
will still encourage TPHs to continue to
send both Simple and Complex volume
to the Exchange.
Further, the Exchange proposes to
increase the VIP credit rates for complex
orders in Tier 3 from $0.24 to $0.23 per
contract for non-AIM volume and from
$0.22 to $.021 per contract for AIM
volume.
MRUT LMM Incentive Program
Finally, the Exchange proposes to
amend its Mini-Russell 2000 Index
option (‘‘MRUT’’) Lead Market-Maker
(‘‘LMM’’) Incentive Program. The
Exchange offers several LMM Incentive
Programs which provide a rebate to
TPHs with LMM appointments to the
respective incentive program that meet
certain quoting standards in the
applicable series in a month. The
Exchange notes that meeting or
exceeding the quoting standards (both
current and as proposed; described in
further detail below) in each of the
LMM Incentive Program products to
receive the applicable rebate (both
currently offered and as proposed;
described in further detail below) is
optional for an LMM appointed to a
program. Particularly, an LMM
appointed to an incentive program is
eligible to receive the corresponding
rebate if it satisfies the applicable
quoting standards, which the Exchange
believes encourages appointed LMMs to
provide liquidity in the applicable class
and trading session (i.e., Regular
Trading Hours (‘‘RTH’’) or Global
Trading Hours). The Exchange may
consider other exceptions to the
programs’ quoting standards based on
demonstrated legal or regulatory
requirements or other mitigating
circumstances. In calculating whether
an LMM appointed to an incentive
program meets the applicable program’s
quoting standards each month, the
Exchange excludes from the calculation
in that month the business day in which
the LMM missed meeting or exceeding
the quoting standards in the highest
number of the applicable series.
The Exchange proposes to amend the
current MRUT LMM Incentive Program.
Currently, the MRUT LMM Incentive
Program provides that, for MRUT, if the
appointed LMM provides continuous
electronic quotes during RTH that meet
or exceed the heightened quoting
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standards in at least 99% of the MRUT
series 90% of the time in a given month,
the LMM will receive a rebate for that
month in the amount of $15,000 (or prorated amount if an appointment begins
after the first trading day of the month
or ends prior to the last trading day of
the month). The Exchange now
proposes to amend the series
qualification requirement for the MRUT
LMM Incentive Program. Specifically,
the Exchange proposes to update the
series qualification requirement to
require the appointed LMM to provide
continuous electronic quotes during
RTH that meet or exceed the heightened
quoting standards in at least 97% the
MRUT series 90% of the time in a given
month in order to receive the rebate,
thereby decreasing the series
qualification requirement by 2%. In
changing this requirement, the
Exchange wishes to encourage LMMs
appointed to the MRUT LMM Incentive
Program to provide significant liquidity
in MRUT options by meeting the series
qualification requirements (and relevant
quoting standards) under the Program in
order to receive the rebate.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.8 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 9 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 10 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange also believes the
proposed rule change is consistent with
Section 6(b)(4) of the Act,11 which
requires that Exchange rules provide for
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
10 Id.
11 15 U.S.C. 78f(b)(4).
46317
the equitable allocation of reasonable
dues, fees, and other charges among its
TPHs and other persons using its
facilities.
The Exchange believes that the
proposed fees for Customer, MarketMaker, Firm and Non-Customer orders
in XSP are reasonable, equitable and not
unfairly discriminatory. The Exchange
notes that the proposed transactions fees
for Customer orders in XSP that are for
more than 10 contracts, as well as for
Market-Maker, Firm and Non-Customer
orders in XSP, remain lower than that
of the similar market participant fees
associated with other index products.12
Further, the Exchange believes that it is
equitable and not unfairly
discriminatory to provide a rebate of
$0.13 for all Customer orders in XSP
that are for less than 10 contracts, as
such rebate is designed to incentivize
Customer volume in XSP on the
Exchange. Additionally, the Exchange
believes it is equitable and not unfairly
discriminatory to establish a fee
structure for Market-Maker orders in
XSP, based on contra-party, and to
adopt a new fee code specific to MarketMaker orders in XSP that are contra
customer, as such changes are also
designed to incentivize an increase in
Customer volume in XSP on the
Exchange. The Exchange believes that
incentivizing more Customer orders in
XSP will create more trading
opportunities, which, in turn attracts
Market-Makers. A resulting increase in
Market-Maker activity facilitates tighter
spreads, which may lead to additional
increase of order flow in XSP from other
market participants, further contributing
to a deeper, more liquid market to the
benefit of all market participants by
creating a more robust and wellbalanced market ecosystem. Further, the
Exchange believes that the changes are
reasonable and that the fees, even as
amended, will continue to incentivize
Members to send additional MarketMaker orders to the Exchange.
The Exchange believes that the
proposed fees for Customer, MarketMaker, Firm and Non-Customer orders
in XSP are equitable and not unfairly
discriminatory because the proposed
fees will apply automatically and
uniformly to all Customer, MarketMaker, Firm and Non-Customer orders
in XSP.
The Exchange believes the proposed
amendment to the VIP, to decrease the
percentage of TPH qualifying VIP
volume (in both AIM and Non-AIM) that
must be comprised of Simple volume in
8 15
9 15
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12 See Cboe Options Fee Schedule, ‘‘Index
Options Rate Table—All Index Products Excluding
Underlying Symbol List A and Sector Indexes’’.
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Federal Register / Vol. 88, No. 137 / Wednesday, July 19, 2023 / Notices
order to receive the complex rates for
both Complex AIM and Non-AIM
volume for Tiers 1 through 3, is
reasonable because it makes it slightly
easier for TPHs to meet the qualifying
criteria to receive the Complex credits
in Tiers 1 through 3. The Exchange
notes that the VIP will continue to
provide an incremental incentive for
TPHs to strive for the highest tier level,
which provides increasingly higher
credits, for both Complex and Simple
volume. The Exchange believes the
proposed change is equitable and not
unfairly discriminatory because the
proposed changes apply to all TPHs
uniformly.
Further, the Exchange believes that
decreasing the VIP credit rates for
complex orders in Tier 3 is reasonable
because it will still allow all TPHs
transmitting public customer complex
orders that reach the Tier 3 volume
thresholds to receive a credit for doing
so (albeit at slightly lower amounts).
The proposed complex credit rates for
Tier 3 also do not represent a significant
departure from the credit rates offered
under the existing Tier 3 and are
therefore still reasonable based on the
difficulty of satisfying the tier’s criteria
and ensures the proposed credit rates,
along with the existing threshold,
appropriately reflect the incremental
difficulty to achieve VIP Tier 3.
The Exchange believes that the
proposed changes to the VIP are
reasonable, equitable and not unfairly
discriminatory, as such changes should
continue to incentivize the sending of
more complex orders to the Exchange.
This should provide greater liquidity
and trading opportunities, including for
market participants who send simple
orders to the Exchange (as simple orders
can trade with the legs of complex
orders). The greater liquidity and
trading opportunities should benefit not
just public customers (whose orders are
the only ones that qualify for the VIP)
but all market participants.
The Exchange believes that the
proposal represents an equitable
allocation of rebates and is not unfairly
discriminatory because all TPHs have
the opportunity to meet the proposed
Simple volume thresholds in Tiers 1
through 3, to receive the complex rates
for both Complex AIM and Non-AIM
volume for Tiers 1 through 3. Given that
TPHs change their trading strategies and
patterns month-to-month to align with
changing market trends and conditions,
as well as pricing and functionality
changes across other exchanges, and
without having a view of activity on
other markets and off-exchange venues,
the Exchange has no way of knowing
whether this proposed rule change
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would definitively result in a shift of
TPHs qualifying for the proposed tiers.
While the Exchange has no way of
predicting with certainty how the rule
change will impact TPHs, the Exchange
anticipates the impact of the proposed
change to be minimal in at least one
TPH will be able to reach Tier 2, as
amended, and two TPHs will be able to
reach Tier 3, as amended. As stated, the
Exchange believes that the proposed
changes do not represent a significant
departure from the current required
criteria, is still reasonable based on the
difficulty of satisfying each tier’s
criteria, and is appropriately aligned
with the incremental difficulty to
achieve the existing VIP tiers. As such,
the Exchange does not anticipate the
proposed change to impact the number
of firms that compete across all tiers, but
instead encourages competition by
encouraging an increase in order flow in
order to qualify for contract credits.
Therefore, the Exchange does not
believe that the proposed changes are
unfairly discriminatory as it would not
impact the range of typical competition
across such tiers.
The Exchange believes it is reasonable
to decrease the series requirement for
the MRUT LMM Incentive Program to
97% (from 99%), as such changes are
reasonably designed to slightly ease the
difficulty in meeting the heightened
quoting standards offered under these
programs (for which an appointed LMM
receives the respective rebates), which,
in turn, provides increased incentive for
LMMs appointed to these programs to
provide significant liquidity in MRUT
options. Such 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 believes that the
proposed changes to the LMM Incentive
Program is equitable and not unfairly
discriminatory. The Exchange believes
that it is equitable and not unfairly
discriminatory to amend the series
qualification requirement for the MRUT
LMM Incentive Program, because such
series qualification requirement will
equally apply to any and all TPHs with
LMM appointments to the MRUT LMM
Incentive Program that seek to meet the
program’s heightened quoting standard
in order to receive the rebate offered
under the program. The Exchange
additionally notes that, if an LMM
appointed to the LMM Incentive
Program does not satisfy the
corresponding heightened quoting
standard for any given month, then it
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simply will not receive the rebate
offered by the respective program for
that month.
Regarding the MRUT LMM Incentive
Program generally, the Exchange
believes it is reasonable, equitable and
not unfairly discriminatory to continue
to offer these financial incentives,
including as amended, to LMMs
appointed to the program, because it
benefits all market participants trading
in MRUT options during RTH. This
incentive program encourages the
LMMs appointed to such program to
satisfy the heightened quoting
standards, which may increase liquidity
and provide more trading opportunities
and tighter spreads. Indeed, the
Exchange notes that these LMMs serve
a crucial role in providing quotes and
the opportunity for market participants
to trade MRUT options, as applicable,
which can lead to increased volume,
providing for robust markets. The
Exchange ultimately offers the LMM
Incentive Program, as amended, to
sufficiently incentivize LMMs
appointed to the incentive program to
provide key liquidity and active markets
in the corresponding program products
during the corresponding trading
sessions, and believes that these
incentive program, as amended, will
continue to encourage increased quoting
to add liquidity in MRUT, thereby
protecting investors and the public
interest. The Exchange also notes that
an LMM appointed to an incentive
program may undertake added costs
each month to satisfy that heightened
quoting standards (e.g., having to
purchase additional logical
connectivity).
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
The amendments to XSP fees will apply
to all similarly situated TPHs equally,
the VIP will apply to all TPHs
submitting qualified orders equally, and
the amendments to the MRUT LMM
Incentive Program will apply uniformly
to any LMM appointment to the
programs.
The Exchange believes that providing
a rebate of $0.13 for Customer orders in
XSP that are for less than 10 contracts
will incentivize Customer volume in
XSP on the Exchange. Further, the
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Federal Register / Vol. 88, No. 137 / Wednesday, July 19, 2023 / Notices
proposed change to establish a fee
structure for Market-Maker orders in
XSP, based on contra-party, and adopt
a new fee code specific to Market-Maker
orders in XSP that are contra customer,
is designed to incentivize an increase in
Customer volume in XSP on the
Exchange. As noted above, Customer
order flow, importantly, provides
increased trading opportunities
signaling additional liquidity and
ultimately enhancing overall market
quality. Further, preferential pricing to
Customers is a long-standing options
industry practice.13
As discussed above, the Exchange
believes the proposed VIP changes
would continue to incentivize the
sending of more complex orders to the
Exchange, which in turn would
encourage the submission of additional
liquidity to a public exchange, thereby
promoting market depth, price
discovery and transparency and
enhancing order execution
opportunities for all TPHs. The
Exchange believes the proposed change
to decrease the percentage of TPH
qualifying VIP volume (in both AIM and
Non-AIM) that must be comprised of
Simple volume in order to receive the
complex rates for both Complex AIM
and Non-AIM volume for Tiers 1
through 3 will continue to provide an
incremental incentive for TPHs to strive
for the highest tier level, which provides
increasingly higher credits, for both
Complex and Simple volume, thus
incentivizing order flow to the
Exchange. Further, the Exchange
believes the change to decrease the VIP
credit rates for complex orders in Tier
3 remain in line to the amounts of
credits paid to market participants by
another exchange for similar
transactions and do not represent a
significant departure from the credit
rates offered under the existing Tier 3.
Finally, in regard to the MRUT LMM
Incentive Program, to the extent LMMs
appointed to this programs receive a
benefit that other market participants do
not, as stated, these LMMs in their role
as Market-Makers on the Exchange have
different obligations and are held to
different standards. An LMM appointed
to an incentive program may also
undertake added costs each month to
satisfy that heightened quoting
standards (e.g., having to purchase
additional logical connectivity). The
13 See e.g., NYSE American Options Fee
Schedule, Section I.A, Options Transaction Fees
and Credits: Rates for Options transactions; and
MIAX Options Fee Schedule, Section (b)(1),
Proprietary Products Exchange Fees: SPIKES, each
of which assesses a lower transaction fee for
customer orders than that of other market
participants.
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Exchange also notes that the proposed
changes 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.
As a result of the above, the Exchange
believes that the proposed changes
furthers the Commission’s goal in
adopting Regulation NMS of fostering
competition among orders, which
promotes ‘‘more efficient pricing of
individual stocks for all types of orders,
large and small.’’ 14
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange notes that it operates in
a highly competitive market. TPHs have
numerous alternative venues that they
may participate on and direct their
order flow, including 16 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 17% of the
market share.15 Therefore, no exchange
possesses significant pricing power in
the execution of option order flow.
Indeed, participants can readily choose
to send their orders to other exchange,
and, additionally off-exchange venues,
if they deem fee levels at those other
venues to be more favorable. Moreover,
the Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
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.’’ 16 The
fact that this market is competitive has
also long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit
stated as follows: ‘‘[n]o one disputes
that competition for order flow is
‘fierce.’ . . . As the SEC explained, ‘[i]n
the U.S. national market system, buyers
and sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’. . ..’’.17 Accordingly, the
Exchange does not believe its proposed
fee change imposes any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
14 Securities Exchange Act Release No. 51808, 70
FR 37495, 37498–99 (June 29, 2005) (S7–10–04)
(Final Rule).
15 See supra note 4.
16 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
17 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)).
18 15 U.S.C. 78s(b)(3)(A).
19 17 CFR 240.19b–4(f).
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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 18 and paragraph (f) of Rule
19b–4 19 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:
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–2023–033 on the subject line.
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Federal Register / Vol. 88, No. 137 / Wednesday, July 19, 2023 / Notices
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–2023–033. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal offices of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to File
Number SR–CBOE–2023–033, and
should be submitted on or before
August 9, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023–15270 Filed 7–18–23; 8:45 am]
ddrumheller on DSK120RN23PROD with NOTICES1
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97903; File No. SR–
CboeBZX–2023–040]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change, As Modified
by Amendment No. 1, To List and
Trade Shares of the VanEck Bitcoin
Trust Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares
July 13, 2023.
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 June 30,
2023, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to list and trade shares of the VanEck
Bitcoin Trust under BZX Rule
14.11(e)(4), Commodity-Based Trust
Shares. On July 11, 2023, the Exchange
filed Amendment No. 1 to the proposed
rule change, which amended and
replaced the proposed rule change in its
entirety. The proposed rule change, as
modified by Amendment No. 1, is
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,
as modified by Amendment No. 1, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) a proposed
rule change to list and trade shares of
the VanEck Bitcoin Trust (the ‘‘Trust’’),3
under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Trust was formed as a Delaware statutory
trust on December 17, 2020 and is operated as a
grantor trust for U.S. federal tax purposes. The
Trust has no fixed termination date.
2 17
20 17
CFR 200.30–3(a)(12).
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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
This Amendment No. 1 to SR–
CboeBZX–2023–040 amends and
replaces in its entirety the proposal as
originally submitted on June 30, 2023.
The Exchange submits this Amendment
No. 1 in order to clarify certain points
and add additional details to the
proposal.
The Exchange proposes to list and
trade the Shares under BZX Rule
14.11(e)(4),4 which governs the listing
and trading of Commodity-Based Trust
Shares on the Exchange.5 VanEck
Digital Assets, LLC is the sponsor of the
Trust (‘‘Sponsor’’).6 The Shares will be
registered with the Commission by
means of the Trust’s registration
statement on Form S–1 (the
‘‘Registration Statement’’).7 A third4 The Commission approved BZX Rule 14.11(e)(4)
in Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(SR–BATS–2011–018).
5 All statements and representations made in this
filing regarding (a) the description of the portfolio,
(b) limitations on portfolio holdings or reference
assets, or (c) the applicability of Exchange rules and
surveillance procedures shall constitute continued
listing requirements for listing the Shares on the
Exchange.
6 The Exchange notes that two other proposals to
list and trade shares of the Trust were previously
disapproved pursuant to delegated authority, one of
which is currently pending Commission Review
pursuant to Rule 431 of the Commission’s Rules of
Practice, 17 CFR 201.431. See Securities Exchange
Act Release Nos. 93559 (November 12, 2021) (SR–
CboeBZX–2021–019), 86 FR 64539 (November 18,
2021); 95978 (October 4, 2022) 87 FR 61418
(October 11, 2022) (SR–CboeBZX–2022–035). See
also Letter from Assistant Secretary J. Matthew
DeLesDernier to Kyle Murray, Assistant General
Counsel, Cboe Global Markets, dated November 12,
2021.
7 See Amendment No. 2 to Registration Statement
on Form S–1, dated June 22, 2022, submitted to the
Commission by the Sponsor on behalf of the Trust
(333–251808). The descriptions of the Trust, the
Shares, and the Benchmark contained herein are
based, in part, on information in the Registration
Statement. The Registration Statement is not yet
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]]>Agencies
[Federal Register Volume 88, Number 137 (Wednesday, July 19, 2023)]
[Notices]
[Pages 46315-46320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15270]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97902; File No. SR-CBOE-2023-033]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
its Fees Schedule
July 13, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 46316]]
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 30, 2023, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options''), filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Fees Schedule. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule, effective July 3,
2023.
XSP Fees
The Exchange first proposes to adopt and amend certain fees related
to transactions in Mini-SPX Index (``XSP'') options. Specifically, the
proposed rule changes amends and adopts certain fees for XSP in the
Rate Table for All Products Underlying Symbol List A, as follows:
Amends fee code XC, appended to all Customer (capacity
``C'') orders in XSP that are for less than 10 contracts and assesses
no charge, to provide a rebate of $0.13 per contract.\3\
---------------------------------------------------------------------------
\3\ The Exchange also proposes to update corresponding Footnote
9 to reflect Customer orders in XSP for less than 10 contracts will
receive a rebate (instead of no charge).
---------------------------------------------------------------------------
Amends fee code CC, appended to all Customer (capacity
``C'') orders in XSP that are for greater than or equal to 10 contracts
and assesses a fee of $0.04 per contract, to assess a fee of $0.07 per
contract.
Adopts fee code MC, appended to all Market-Maker (capacity
``M'') orders in XSP that are contra customer and assesses a fee of
$0.15 per contract.
Amends fee code MX, currently appended to all Market-Maker
(capacity ``M'') orders in XSP and assesses a fee of $0.045, to apply
to orders contra to non-customers and to assess a fee of $0.09 per
contract.
Amends fee code XF, appended to all Clearing Trading
Permit Holders (``TPHs'') (capacity ``F'') and Non-Clearing TPH
Affiliates (capacity ``L'') (collectively, ``Firms'') orders in XSP and
assesses a fee of $0.06, to assess a fee of $0.13 per contract.
Amends fee code XB, appended to all Broker-Dealer
(capacity ``B''), Joint Back-Office (capacity ``J''), Non-TPH Market-
Maker (capacity ``N''), and Professional (capacity ``U'')
(collectively, ``Non-Customers'') orders in XSP and assesses a fee of
$0.08 per contract, to assess a fee of $0.17 per contract.
Customer Volume Incentive Program
The Exchange proposes to amend the Customer Volume Incentive
Program (``VIP''). The Exchange first notes that it operates in a
highly competitive market in which market participants can readily
direct order flow to competing venues if they deem fee levels at a
particular venue to be excessive or incentives to be insufficient. More
specifically, the Exchange is only one of 16 options venues to which
market participants may direct their order flow. Based on publicly
available information, no single options exchange has more than 17% of
the market share.\4\ Thus, in such a low-concentrated and highly
competitive market, no single options exchange possesses significant
pricing power in the execution of option order flow. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow, or discontinue to reduce use of certain categories of products,
in response to fee changes. Accordingly, competitive forces constrain
the Exchange's transaction fees, and market participants can readily
trade on competing venues if they deem pricing levels at those other
venues to be more favorable. In response to the competitive
environment, the Exchange offers tiered pricing in its Fees Schedule,
like that of other options exchanges fees schedules,\5\ which provides
TPHs opportunities to qualify for higher rebates or reduced fees where
certain volume criteria and thresholds are met. Tiered pricing provides
an incremental incentive for TPHs to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
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\4\ See Cboe Global Markets U.S. Options Market Volume Summary
(June 28, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
\5\ See e.g., NASDAQ Stock Market Rules, Options Rules, Options
7 Pricing Schedule, Sec. 2 Options Market--Fees and Rebates, Tiers
1-6; see also NYSE Arca Options, Fees and Charges, Customer Posting
Credit Tiers in Non-Penny Issues.
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For example, under the VIP, the Exchange credits each TPH the per
contract amount set forth in the VIP table for Public Customer (origin
code ``C'') orders transmitted by TPHs (with certain exceptions) \6\
and executed electronically on the Exchange, provided the TPH meets
certain volume thresholds in a month; volume for Professional Customers
and Voluntary Professionals (``Professional Customers'') (origin code
``W''), Broker-Dealers (origin code ``B''), and Joint Back-Offices
(``JBO'') (origin code ``J'') orders are counted toward reaching such
thresholds.\7\
---------------------------------------------------------------------------
\6\ See Cboe Options Fees Schedule, Footnote 36.
\7\ See Cboe Options Fees Schedule, Volume Incentive Program.
---------------------------------------------------------------------------
The VIP offers both rates for Complex and Simple orders. The VIP
provides however, that a TPH will only receive the Complex credit rates
for both its Complex AIM and Non-AIM volume if at least 38% of that
TPH's qualifying VIP volume (in both AIM and Non-AIM) in the previous
month was comprised of Simple volume. If the TPH's previous month's
volume does not meet the 38% Simple volume threshold, then the TPH's
Customer (C) Complex volume will receive credits at the Simple rate
only (i.e., all volume, both Simple and Complex, will receive credits
at the applicable Simple rate). The Exchange proposes to reduce the 38%
threshold to 32%, for Tiers 1, 2, and 3 (the 38% threshold will
continue to apply to Tiers 4 and 5). The proposed change is designed to
increase the amount of volume TPHs provide on the Exchange
[[Page 46317]]
and further encourage them to contribute to a deeper, more liquid
market, as well as to increase transactions and take such execution
opportunities provided by such increased liquidity, while implementing
an incremental incentive for TPHs to strive for the highest level. The
Exchange believes the proposed change will still encourage TPHs to
continue to send both Simple and Complex volume to the Exchange.
Further, the Exchange proposes to increase the VIP credit rates for
complex orders in Tier 3 from $0.24 to $0.23 per contract for non-AIM
volume and from $0.22 to $.021 per contract for AIM volume.
MRUT LMM Incentive Program
Finally, the Exchange proposes to amend its Mini-Russell 2000 Index
option (``MRUT'') Lead Market-Maker (``LMM'') Incentive Program. The
Exchange offers several LMM Incentive Programs which provide a rebate
to TPHs with LMM appointments to the respective incentive program that
meet certain quoting standards in the applicable series in a month. The
Exchange notes that meeting or exceeding the quoting standards (both
current and as proposed; described in further detail below) in each of
the LMM Incentive Program products to receive the applicable rebate
(both currently offered and as proposed; described in further detail
below) is optional for an LMM appointed to a program. Particularly, an
LMM appointed to an incentive program is eligible to receive the
corresponding rebate if it satisfies the applicable quoting standards,
which the Exchange believes encourages appointed LMMs to provide
liquidity in the applicable class and trading session (i.e., Regular
Trading Hours (``RTH'') or Global Trading Hours). The Exchange may
consider other exceptions to the programs' quoting standards based on
demonstrated legal or regulatory requirements or other mitigating
circumstances. In calculating whether an LMM appointed to an incentive
program meets the applicable program's quoting standards each month,
the Exchange excludes from the calculation in that month the business
day in which the LMM missed meeting or exceeding the quoting standards
in the highest number of the applicable series.
The Exchange proposes to amend the current MRUT LMM Incentive
Program. Currently, the MRUT LMM Incentive Program provides that, for
MRUT, if the appointed LMM provides continuous electronic quotes during
RTH that meet or exceed the heightened quoting standards in at least
99% of the MRUT series 90% of the time in a given month, the LMM will
receive a rebate for that month in the amount of $15,000 (or pro-rated
amount if an appointment begins after the first trading day of the
month or ends prior to the last trading day of the month). The Exchange
now proposes to amend the series qualification requirement for the MRUT
LMM Incentive Program. Specifically, the Exchange proposes to update
the series qualification requirement to require the appointed LMM to
provide continuous electronic quotes during RTH that meet or exceed the
heightened quoting standards in at least 97% the MRUT series 90% of the
time in a given month in order to receive the rebate, thereby
decreasing the series qualification requirement by 2%. In changing this
requirement, the Exchange wishes to encourage LMMs appointed to the
MRUT LMM Incentive Program to provide significant liquidity in MRUT
options by meeting the series qualification requirements (and relevant
quoting standards) under the Program in order to receive the rebate.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also 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 TPHs and other
persons using its facilities.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
\11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes that the proposed fees for Customer, Market-
Maker, Firm and Non-Customer orders in XSP are reasonable, equitable
and not unfairly discriminatory. The Exchange notes that the proposed
transactions fees for Customer orders in XSP that are for more than 10
contracts, as well as for Market-Maker, Firm and Non-Customer orders in
XSP, remain lower than that of the similar market participant fees
associated with other index products.\12\ Further, the Exchange
believes that it is equitable and not unfairly discriminatory to
provide a rebate of $0.13 for all Customer orders in XSP that are for
less than 10 contracts, as such rebate is designed to incentivize
Customer volume in XSP on the Exchange. Additionally, the Exchange
believes it is equitable and not unfairly discriminatory to establish a
fee structure for Market-Maker orders in XSP, based on contra-party,
and to adopt a new fee code specific to Market-Maker orders in XSP that
are contra customer, as such changes are also designed to incentivize
an increase in Customer volume in XSP on the Exchange. The Exchange
believes that incentivizing more Customer orders in XSP will create
more trading opportunities, which, in turn attracts Market-Makers. A
resulting increase in Market-Maker activity facilitates tighter
spreads, which may lead to additional increase of order flow in XSP
from other market participants, further contributing to a deeper, more
liquid market to the benefit of all market participants by creating a
more robust and well-balanced market ecosystem. Further, the Exchange
believes that the changes are reasonable and that the fees, even as
amended, will continue to incentivize Members to send additional
Market-Maker orders to the Exchange.
---------------------------------------------------------------------------
\12\ See Cboe Options Fee Schedule, ``Index Options Rate Table--
All Index Products Excluding Underlying Symbol List A and Sector
Indexes''.
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The Exchange believes that the proposed fees for Customer, Market-
Maker, Firm and Non-Customer orders in XSP are equitable and not
unfairly discriminatory because the proposed fees will apply
automatically and uniformly to all Customer, Market-Maker, Firm and
Non-Customer orders in XSP.
The Exchange believes the proposed amendment to the VIP, to
decrease the percentage of TPH qualifying VIP volume (in both AIM and
Non-AIM) that must be comprised of Simple volume in
[[Page 46318]]
order to receive the complex rates for both Complex AIM and Non-AIM
volume for Tiers 1 through 3, is reasonable because it makes it
slightly easier for TPHs to meet the qualifying criteria to receive the
Complex credits in Tiers 1 through 3. The Exchange notes that the VIP
will continue to provide an incremental incentive for TPHs to strive
for the highest tier level, which provides increasingly higher credits,
for both Complex and Simple volume. The Exchange believes the proposed
change is equitable and not unfairly discriminatory because the
proposed changes apply to all TPHs uniformly.
Further, the Exchange believes that decreasing the VIP credit rates
for complex orders in Tier 3 is reasonable because it will still allow
all TPHs transmitting public customer complex orders that reach the
Tier 3 volume thresholds to receive a credit for doing so (albeit at
slightly lower amounts). The proposed complex credit rates for Tier 3
also do not represent a significant departure from the credit rates
offered under the existing Tier 3 and are therefore still reasonable
based on the difficulty of satisfying the tier's criteria and ensures
the proposed credit rates, along with the existing threshold,
appropriately reflect the incremental difficulty to achieve VIP Tier 3.
The Exchange believes that the proposed changes to the VIP are
reasonable, equitable and not unfairly discriminatory, as such changes
should continue to incentivize the sending of more complex orders to
the Exchange. This should provide greater liquidity and trading
opportunities, including for market participants who send simple orders
to the Exchange (as simple orders can trade with the legs of complex
orders). The greater liquidity and trading opportunities should benefit
not just public customers (whose orders are the only ones that qualify
for the VIP) but all market participants.
The Exchange believes that the proposal represents an equitable
allocation of rebates and is not unfairly discriminatory because all
TPHs have the opportunity to meet the proposed Simple volume thresholds
in Tiers 1 through 3, to receive the complex rates for both Complex AIM
and Non-AIM volume for Tiers 1 through 3. Given that TPHs change their
trading strategies and patterns month-to-month to align with changing
market trends and conditions, as well as pricing and functionality
changes across other exchanges, and without having a view of activity
on other markets and off-exchange venues, the Exchange has no way of
knowing whether this proposed rule change would definitively result in
a shift of TPHs qualifying for the proposed tiers. While the Exchange
has no way of predicting with certainty how the rule change will impact
TPHs, the Exchange anticipates the impact of the proposed change to be
minimal in at least one TPH will be able to reach Tier 2, as amended,
and two TPHs will be able to reach Tier 3, as amended. As stated, the
Exchange believes that the proposed changes do not represent a
significant departure from the current required criteria, is still
reasonable based on the difficulty of satisfying each tier's criteria,
and is appropriately aligned with the incremental difficulty to achieve
the existing VIP tiers. As such, the Exchange does not anticipate the
proposed change to impact the number of firms that compete across all
tiers, but instead encourages competition by encouraging an increase in
order flow in order to qualify for contract credits. Therefore, the
Exchange does not believe that the proposed changes are unfairly
discriminatory as it would not impact the range of typical competition
across such tiers.
The Exchange believes it is reasonable to decrease the series
requirement for the MRUT LMM Incentive Program to 97% (from 99%), as
such changes are reasonably designed to slightly ease the difficulty in
meeting the heightened quoting standards offered under these programs
(for which an appointed LMM receives the respective rebates), which, in
turn, provides increased incentive for LMMs appointed to these programs
to provide significant liquidity in MRUT options. Such 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 believes that the proposed changes to the LMM
Incentive Program is equitable and not unfairly discriminatory. The
Exchange believes that it is equitable and not unfairly discriminatory
to amend the series qualification requirement for the MRUT LMM
Incentive Program, because such series qualification requirement will
equally apply to any and all TPHs with LMM appointments to the MRUT LMM
Incentive Program that seek to meet the program's heightened quoting
standard in order to receive the rebate offered under the program. The
Exchange additionally notes that, if an LMM appointed to the LMM
Incentive Program does not satisfy the corresponding heightened quoting
standard for any given month, then it simply will not receive the
rebate offered by the respective program for that month.
Regarding the MRUT LMM Incentive Program generally, the Exchange
believes it is reasonable, equitable and not unfairly discriminatory to
continue to offer these financial incentives, including as amended, to
LMMs appointed to the program, because it benefits all market
participants trading in MRUT options during RTH. This incentive program
encourages the LMMs appointed to such program to satisfy the heightened
quoting standards, which may increase liquidity and provide more
trading opportunities and tighter spreads. Indeed, the Exchange notes
that these LMMs serve a crucial role in providing quotes and the
opportunity for market participants to trade MRUT options, as
applicable, which can lead to increased volume, providing for robust
markets. The Exchange ultimately offers the LMM Incentive Program, as
amended, to sufficiently incentivize LMMs appointed to the incentive
program to provide key liquidity and active markets in the
corresponding program products during the corresponding trading
sessions, and believes that these incentive program, as amended, will
continue to encourage increased quoting to add liquidity in MRUT,
thereby protecting investors and the public interest. The Exchange also
notes that an LMM appointed to an incentive program may undertake added
costs each month to satisfy that heightened quoting standards (e.g.,
having to purchase additional logical connectivity).
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The amendments to XSP fees will
apply to all similarly situated TPHs equally, the VIP will apply to all
TPHs submitting qualified orders equally, and the amendments to the
MRUT LMM Incentive Program will apply uniformly to any LMM appointment
to the programs.
The Exchange believes that providing a rebate of $0.13 for Customer
orders in XSP that are for less than 10 contracts will incentivize
Customer volume in XSP on the Exchange. Further, the
[[Page 46319]]
proposed change to establish a fee structure for Market-Maker orders in
XSP, based on contra-party, and adopt a new fee code specific to
Market-Maker orders in XSP that are contra customer, is designed to
incentivize an increase in Customer volume in XSP on the Exchange. As
noted above, Customer order flow, importantly, provides increased
trading opportunities signaling additional liquidity and ultimately
enhancing overall market quality. Further, preferential pricing to
Customers is a long-standing options industry practice.\13\
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\13\ See e.g., NYSE American Options Fee Schedule, Section I.A,
Options Transaction Fees and Credits: Rates for Options
transactions; and MIAX Options Fee Schedule, Section (b)(1),
Proprietary Products Exchange Fees: SPIKES, each of which assesses a
lower transaction fee for customer orders than that of other market
participants.
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As discussed above, the Exchange believes the proposed VIP changes
would continue to incentivize the sending of more complex orders to the
Exchange, which in turn would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all TPHs. The Exchange believes the proposed change to decrease the
percentage of TPH qualifying VIP volume (in both AIM and Non-AIM) that
must be comprised of Simple volume in order to receive the complex
rates for both Complex AIM and Non-AIM volume for Tiers 1 through 3
will continue to provide an incremental incentive for TPHs to strive
for the highest tier level, which provides increasingly higher credits,
for both Complex and Simple volume, thus incentivizing order flow to
the Exchange. Further, the Exchange believes the change to decrease the
VIP credit rates for complex orders in Tier 3 remain in line to the
amounts of credits paid to market participants by another exchange for
similar transactions and do not represent a significant departure from
the credit rates offered under the existing Tier 3.
Finally, in regard to the MRUT LMM Incentive Program, to the extent
LMMs appointed to this programs receive a benefit that other market
participants do not, as stated, these LMMs in their role as Market-
Makers on the Exchange have different obligations and are held to
different standards. An LMM appointed to an incentive program may also
undertake added costs each month to satisfy that heightened quoting
standards (e.g., having to purchase additional logical connectivity).
The Exchange also notes that the proposed changes 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.
As a result of the above, the Exchange believes that the proposed
changes furthers the Commission's goal in adopting Regulation NMS of
fostering competition among orders, which promotes ``more efficient
pricing of individual stocks for all types of orders, large and
small.'' \14\
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\14\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
notes that it operates in a highly competitive market. TPHs have
numerous alternative venues that they may participate on and direct
their order flow, including 16 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 17% of the market share.\15\ Therefore, no exchange possesses
significant pricing power in the execution of option order flow.
Indeed, participants can readily choose to send their orders to other
exchange, and, additionally off-exchange venues, if they deem fee
levels at those other venues to be more favorable. Moreover, the
Commission has repeatedly expressed its preference for competition over
regulatory intervention in 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.'' \16\ The fact that this market is
competitive has also long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . ..''.\17\ Accordingly, the Exchange
does not believe its proposed fee change imposes any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\15\ See supra note 4.
\16\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\17\ 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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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 \18\ and paragraph (f) of Rule 19b-4 \19\
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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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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-2023-033 on the subject line.
[[Page 46320]]
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-2023-033. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal offices of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to File Number SR-CBOE-2023-033, and should be
submitted on or before August 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15270 Filed 7-18-23; 8:45 am]
BILLING CODE 8011-01-P
