Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Relating to the Options Regulatory Fee, 57146-57149 [2023-17978]
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57146
Federal Register / Vol. 88, No. 161 / Tuesday, August 22, 2023 / Notices
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open market and a national market
system because it would ensure that a
User would be reimbursed for all of its
deposit even if it reduces its order after
the Ordering Window closes. This
would remove any incentive a User
otherwise might have to understate its
needs for power out of a concern that it
would not be reimbursed for the full
amount of its deposit.
The proposed rule change would
protect investors and the public interest
in that it would provide the Exchange
with accurate insight into Users’ true
power requirements. It is in the public
interest for the Exchange to take User
demand into account and to make
reasoned, informed decisions about
whether and how to expand the MDC.
The proposed rule change is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers. The
proposed changes would apply equally
to all types and sizes of market
participants. All Users would receive
equal notice of the opening of the
Ordering Window; the Ordering
Window dates would be the same for all
Users; and each order during the
Ordering Window would be secured
with a deposit equal to two months of
the monthly recurring costs of the
power ordered. Smaller Users with more
modest power needs would not be
disadvantaged by the proposed changes.
In Step 2, each User that finalized an
order during the Ordering Window
would be allocated up to 32 kW of
power (subject to sufficient power being
available) before any User’s order for
more than 32 kW would be filled. This
would ensure that all Users that
participate in the Ordering Window
would receive at least some power and
no Users would be shut out of the
allocation. In addition, because the
deposit is proportional to the size of the
order and not a fixed amount, smaller
Users would not be disproportionately
affected by the deposit requirement.
Finally, the proposed Ordering Window
procedure would not disadvantage
Users on the current waitlist pursuant to
Colocation Note 7, since power would
be allocated to those orders first under
the Ordering Window procedure.
For all these reasons, the Exchange
believes that the proposal is consistent
with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with section 6(b)(8) of
the Act,19 the Exchange believes that the
proposed rule change will not impose
any burden on competition that is not
19 15
U.S.C. 78f(b)(8).
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necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange believes that the
proposed rule change would not place
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change would provide an
alternative procedure by which the
Exchange can allocate power in the
MDC that both provides the Exchange
with reliable information about Users’
true power needs and allows all Users
that submit deposit-guaranteed orders
during the Ordering Window to be
assured of receiving at least some
additional power. The Exchange does
not expect the proposed rule change to
impact intra-market or intermarket
competition between exchanges, Users,
or any other market participants.
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.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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–
NYSEARCA–2023–53 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
PO 00000
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Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–NYSEARCA–2023–53. 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–NYSEARCA–2023–53 and should be
submitted on or before September 12,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–17982 Filed 8–21–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98146; File No. SR–C2–
2023–019]
Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Fees
Schedule Relating to the Options
Regulatory Fee
August 16, 2023.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
20 17
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CFR 200.30–3(a)(12).
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Federal Register / Vol. 88, No. 161 / Tuesday, August 22, 2023 / Notices
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
14, 2023, Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2 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://markets.cboe.com/us/
options/regulation/rule_filings/ctwo/),
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 reduce the
Options Regulatory Fee (‘‘ORF’’) from
$0.0003 per contract to $0.0002 per
contract in order to help ensure that
revenue collected from the ORF, in
combination with other regulatory fees
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1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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and fines, does not exceed the
Exchange’s total regulatory costs.3
The ORF is assessed by C2 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.4 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, C2 Options
reimburses its routing broker providing
Routing Services pursuant to C2
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 25% of C2’s total
regulatory costs for 2023. Thus, direct
expenses are estimated to be
approximately 75% of total regulatory
costs for 2023. In addition, it is C2
Options’ practice that revenue generated
3 The Exchange initially filed the proposed rule
change on August 1, 2023 (SR–C2–2023–018). On
August 14, 2023, the Exchange withdrew that filing
and submitted this filing.
4 The Exchange notes ORF also applies to
customer-range transactions executed during Global
Trading Hours.
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57147
from ORF not exceed more than 75% of
total annual regulatory costs.
These expectations are estimated,
preliminary and may change. There can
be no assurance that the Exchange’s
final costs for 2023 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 combined revenue that is
running in excess of the Exchange’s
estimated regulatory costs for the year.5
Particularly, as discussed above, the
options market has seen a substantial
increase in volume over the first half of
the year, up even from last year’s
unprecedented volume. This increase
resulted in higher volume than was
originally projected by the Exchange
(thereby resulting in higher ORF
revenue than projected). Moreover, in
addition to projected reductions in
regulatory expenses, the Exchange’s
expenses have been reduced.6
Accordingly, because revenue generated
by the current ORF rates, when
combined with the Exchange’s other
non-ORF regulatory fees and fines, is
expected to exceed the Exchange’s
regulatory costs for the year, the
Exchange proposes to decrease its ORF
rate. 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.7
5 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.
6 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.
7 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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Federal Register / Vol. 88, No. 161 / Tuesday, August 22, 2023 / Notices
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
Exchange Notice, including for the
change being proposed herein.8 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 $0.0003 per contract side to
$0.0002 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
increased. For example, total options
contract volume in June 2023 was
approximately 19% higher than the total
options contract volume in June 2022
and the total options contract volume in
March 2023 was approximately 12%
higher than the total options contract
volume in March 2022.9 In fact, March
2023 was the high total volume in
month in the history of U.S. equities
options industry and May 2023 was the
third highest options volume month in
the history of U.S. equity options
industry.10 The below table displays
monthly total volumes for 2023.11
Month
Total volume
January 2023 ...................................................................................................................................................
February 2023 .................................................................................................................................................
March 2023 ......................................................................................................................................................
April 2023 .........................................................................................................................................................
May 2023 .........................................................................................................................................................
June 2023 ........................................................................................................................................................
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.12 Specifically,
the Exchange believes the proposed rule
change is consistent with section 6(b)(4)
of the Act,13 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) 14 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 to lessen the
potential that the Exchange collects
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 $0.0003 to $0.0002 per contract
side.
8 See Exchange Notice, C2023071301 ‘‘Cboe
Options Exchanges Regulatory Fee Update Effective
August 1, 2023.’’ The Exchange will endeavor to
provide TPHs with notice of any future changes at
least 30 calendar days prior to the effective date of
the change.
9 See https://www.theocc.com/newsroom/pressreleases/2023/07-05-occ-clears-962-6m-contractsin-june-2023,-up-19-4-year-over-year and https://
www.theocc.com/newsroom/press-releases/2023/
04-04-occ-clears-over-1b-total-contracts-in-march2023-highest-month-on-record-and-up-12-2-year.
10 Id. See also https://www.theocc.com/
newsroom/press-releases/2023/06-02-occ-clears949-1m-contracts-in-may-2023-third-highestmonth-on-record.
11 Volume data in the table represents numbers of
contracts; each contract has two sides. June
numbers reflect volumes through June 29, 2023.
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.
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2. Statutory Basis
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919,299,330
883,234,837
1,052,984,722
760,808,909
944,534,205
909,616,267
Customer sides
802,712,235
780,284,838
915,674,991
673,183,772
826,490,407
801,688,960
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.15 Moreover, the
Exchange notes that it has broad
regulatory responsibilities with respect
to its TPHs’ activities, irrespective of
where their transactions take place.
12 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
14 15 U.S.C. 78f(b)(5).
15 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.
13 15
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Federal Register / Vol. 88, No. 161 / Tuesday, August 22, 2023 / Notices
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’’) 16 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 TPHs’ customer trading
activity.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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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.
16 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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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 is effective
upon filing pursuant to section
19(b)(3)(A) 17 of the Act and
subparagraph (f)(2) of Rule 19b–4 18
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
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) 19 of the Act 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–
C2–2023–019 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–C2–2023–019. 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/
17 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
19 15 U.S.C. 78s(b)(2)(B).
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–C2–2023–019 and should be
submitted on or before September 12,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–17978 Filed 8–21–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–559, OMB Control No.
3235–0621]
Proposed Collection; Comment
Request; Extension: Form 15F
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
18 17
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 88, Number 161 (Tuesday, August 22, 2023)]
[Notices]
[Pages 57146-57149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17978]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98146; File No. SR-C2-2023-019]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule Relating to the Options Regulatory Fee
August 16, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the
[[Page 57147]]
``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 14, 2023, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'')
filed with the Securities and Exchange Commission (the ``Commission'')
the proposed rule change as described in Items I and II, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\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 C2 Exchange, Inc. (the ``Exchange'' or ``C2 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://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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 reduce the Options Regulatory Fee
(``ORF'') from $0.0003 per contract to $0.0002 per contract 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.\3\
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\3\ The Exchange initially filed the proposed rule change on
August 1, 2023 (SR-C2-2023-018). On August 14, 2023, the Exchange
withdrew that filing and submitted this filing.
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The ORF is assessed by C2 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.\4\ 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, C2 Options reimburses its routing broker providing
Routing Services pursuant to C2 Options Rule 5.36 for options
regulatory fees it incurs in connection with the Routing Services it
provides.
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\4\ The Exchange notes ORF also applies to customer-range
transactions executed during Global Trading Hours.
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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 25% of C2's total
regulatory costs for 2023. Thus, direct expenses are estimated to be
approximately 75% of total regulatory costs for 2023. In addition, it
is C2 Options' practice that revenue generated from ORF not exceed more
than 75% of total annual regulatory costs.
These expectations are estimated, preliminary and may change. There
can be no assurance that the Exchange's final costs for 2023 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 combined revenue that is running in excess of the Exchange's
estimated regulatory costs for the year.\5\ Particularly, as discussed
above, the options market has seen a substantial increase in volume
over the first half of the year, up even from last year's unprecedented
volume. This increase resulted in higher volume than was originally
projected by the Exchange (thereby resulting in higher ORF revenue than
projected). Moreover, in addition to projected reductions in regulatory
expenses, the Exchange's expenses have been reduced.\6\ Accordingly,
because revenue generated by the current ORF rates, when combined with
the Exchange's other non-ORF regulatory fees and fines, is expected to
exceed the Exchange's regulatory costs for the year, the Exchange
proposes to decrease its ORF rate. 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.\7\
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\5\ 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.
\6\ 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.
\7\ 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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[[Page 57148]]
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 Exchange Notice, including
for the change being proposed herein.\8\ 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 $0.0003 per
contract side to $0.0002 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
increased. For example, total options contract volume in June 2023 was
approximately 19% higher than the total options contract volume in June
2022 and the total options contract volume in March 2023 was
approximately 12% higher than the total options contract volume in
March 2022.\9\ In fact, March 2023 was the high total volume in month
in the history of U.S. equities options industry and May 2023 was the
third highest options volume month in the history of U.S. equity
options industry.\10\ The below table displays monthly total volumes
for 2023.\11\
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\8\ See Exchange Notice, C2023071301 ``Cboe Options Exchanges
Regulatory Fee Update Effective August 1, 2023.'' The Exchange will
endeavor to provide TPHs with notice of any future changes at least
30 calendar days prior to the effective date of the change.
\9\ See https://www.theocc.com/newsroom/press-releases/2023/07-05-occ-clears-962-6m-contracts-in-june-2023,-up-19-4-year-over-year
and https://www.theocc.com/newsroom/press-releases/2023/04-04-occ-clears-over-1b-total-contracts-in-march-2023-highest-month-on-record-and-up-12-2-year.
\10\ Id. See also https://www.theocc.com/newsroom/press-releases/2023/06-02-occ-clears-949-1m-contracts-in-may-2023-third-highest-month-on-record.
\11\ Volume data in the table represents numbers of contracts;
each contract has two sides. June numbers reflect volumes through
June 29, 2023.
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Month Total volume Customer sides
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January 2023........................ 919,299,330 802,712,235
February 2023....................... 883,234,837 780,284,838
March 2023.......................... 1,052,984,722 915,674,991
April 2023.......................... 760,808,909 673,183,772
May 2023............................ 944,534,205 826,490,407
June 2023........................... 909,616,267 801,688,960
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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.\12\ Specifically, the
Exchange believes the proposed rule change is consistent with section
6(b)(4) of the Act,\13\ 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) \14\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f(b)(5).
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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 to
lessen the potential that the Exchange collects 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 $0.0003 to $0.0002 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.\15\ Moreover, the Exchange
notes that it has broad regulatory responsibilities with respect to its
TPHs' activities, irrespective of where their transactions take place.
[[Page 57149]]
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'') \16\ 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 TPHs'
customer trading activity.
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\15\ 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.
\16\ 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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
section 19(b)(3)(A) \17\ of the Act and subparagraph (f)(2) of Rule
19b-4 \18\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(2).
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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) \19\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\19\ 15 U.S.C. 78s(b)(2)(B).
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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-C2-2023-019 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-C2-2023-019. 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-C2-2023-019 and should be
submitted on or before September 12, 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).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17978 Filed 8-21-23; 8:45 am]
BILLING CODE 8011-01-P
