Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees, 64939-64942 [2023-20314]

Download as PDF Federal Register / Vol. 88, No. 181 / Wednesday, September 20, 2023 / Notices IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: • 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– BOX–2023–23 on the subject line. Paper Comments lotter on DSK11XQN23PROD with NOTICES1 • 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–BOX–2023–23. 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–BOX–2023–23 and should be submitted on or before October 11, 2023. VerDate Sep<11>2014 16:38 Sep 19, 2023 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Sherry R. Haywood, Assistant Secretary. places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. [FR Doc. 2023–20304 Filed 9–19–23; 8:45 am] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments Jkt 259001 64939 [Release No. 34–98397; File No. SR–C2– 2023–020] Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees September 14, 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 September 1, 2023, Cboe C2 Exchange, Inc. (the ‘‘Exchange’’ or ‘‘C2’’) 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 C2 Exchange, Inc. (the ‘‘Exchange’’ or ‘‘C2 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://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 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 1. Purpose The Exchange proposes to amend its fee schedule relating to physical connectivity fees.3 By way of background, a physical port is utilized by a Member or non-Member to connect to the Exchange at the data centers where the Exchange’s servers are located. The Exchange currently assesses the following physical connectivity fees for Trading Permit Holders (‘‘TPHs’’) and non-TPHs on a monthly basis: $2,500 per physical port for a 1 gigabit (‘‘Gbps’’) circuit and $7,500 per physical port for a 10 Gbps circuit. The Exchange proposes to increase the monthly fee for 10 Gbps physical ports from $7,500 to $8,500 per port. The Exchange notes the proposed fee change better enables it to continue to maintain and improve its market technology and services and also notes that the proposed fee amount, even as amended, continues to be in line with, or even lower than, amounts assessed by other exchanges for similar connections.4 The physical ports may also be used to access the Systems for the following affiliate exchanges and only one monthly fee currently (and will continue) to apply per port: Cboe BZX Exchange, Inc. (options and equities platforms), Cboe EDGX Exchange, Inc. (options and equities platforms), Cboe BYX Exchange, Inc., and Cboe EDGA Exchange, Inc. (‘‘Affiliate Exchanges’’).5 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the 3 The Exchange initially filed the proposed fee changes on July 3, 2023 (SR–C2–2023–014). On September 1, 2023, the Exchange withdrew that filing and submitted this proposal. 4 See e.g., The Nasdaq Stock Market LLC (‘‘Nasdaq’’), General 8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges charge a monthly fee of $15,000 for each 10Gbps Ultra fiber connection to the respective exchange, which is analogous to the Exchange’s 10Gbps physical port. See also New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides that 10 Gbps LX LCN Circuits (which are analogous to the Exchange’s 10 Gbps physical port) are assessed $22,000 per month, per port. 5 The Affiliate Exchanges are also submitting contemporaneous identical rule filings. E:\FR\FM\20SEN1.SGM 20SEN1 64940 Federal Register / Vol. 88, No. 181 / Wednesday, September 20, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.6 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 7 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) 8 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) 9 of the Act, 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. The Exchange believes the proposed fee change is reasonable as it reflects a moderate increase in physical connectivity fees for 10 Gbps physical ports. Further, the current 10 Gbps physical port fee has remained unchanged since June 2018.10 Since its last increase 5 years ago however, there has been notable inflation. Particularly, the dollar has had an average inflation rate of 3.9% per year between 2018 and today, producing a cumulative price increase of approximately 21.1% inflation since the fee for the 10 Gbps physical port was last modified.11 Accordingly, the Exchange believes the proposed fee is reasonable as it represents only an approximate 13% increase from the rates adopted five years ago, notwithstanding the cumulative rate of 21.1%. The Exchange also believes the proposed fee is reasonable as it is still in line with, or even lower than, amounts assessed by other exchanges 6 15 7 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 8 Id. 9 15 U.S.C. 78f(b)(4). Securities and Exchange Release No. 83455 (June 15, 2018), 83 FR 28892 (June 21, 2018) (SR– C2–2018–014). 11 See https://www.officialdata.org/us/inflation/ 2010?amount=1. 10 See VerDate Sep<11>2014 16:38 Sep 19, 2023 Jkt 259001 for similar connections.12 As noted above, the proposed fee is also the same as is concurrently being proposed for its Affiliate Exchanges. Further, TPHs are able to utilize a single port to connect to any of the Affiliate Exchanges with no additional fee assessed for that same physical port. Particularly, the Exchange believes the proposed monthly per port fee is reasonable, equitable and not unfairly discriminatory as it is assessed only once, even if it connects with another affiliate exchange since only one port is being used and the Exchange does not wish to charge multiple fees for the same port. Indeed, the Exchange notes that several ports are in fact purchased and utilized across one or more of the Exchange’s affiliated Exchanges (and charged only once). The Exchange also believes that the proposed fee change is not unfairly discriminatory because it would be assessed uniformly across all market participants that purchase the physical ports. The Exchange believes increasing the fee for 10 Gbps physical ports and charging a higher fee as compared to the 1 Gbps physical port is equitable as the 1 Gbps physical port is 1⁄10th the size of the 10 Gbps physical port and therefore does not offer access to many of the products and services offered by the Exchange (e.g., ability to receive certain market data products). Thus, the value of the 1 Gbps alternative is lower than the value of the 10 Gbps alternative, when measured based on the type of Exchange access it offers. Moreover, market participants that purchase 10 Gbps physical ports utilize the most bandwidth and therefore consume the most resources from the network. As such, the Exchange believes the proposed fee change for 10 Gbps physical ports is reasonably and appropriately allocated. The Exchange also notes TPHs and non-TPHs will continue to choose the method of connectivity based on their specific needs and no broker-dealer is required to become a TPH of, let alone connect directly to, the Exchange. There is also no regulatory requirement that any market participant connect to any one particular exchange. Moreover, direct connectivity is not a requirement 12 See e.g., The Nasdaq Stock Market LLC (‘‘Nasdaq’’), General 8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges charge a monthly fee of $15,000 for each 10Gbps Ultra fiber connection to the respective exchange, which is analogous to the Exchange’s 10Gbps physical port. See also New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE National, Inc. Connectivity Fee Schedule, which provides that 10 Gbps LX LCN Circuits (which are analogous to the Exchange’s 10 Gbps physical port) are assessed $22,000 per month, per port. PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 to participate on the Exchange. The Exchange also believes substitutable products and services are available to market participants, including, among other things, other options exchanges that a market participant may connect to in lieu of the Exchange, indirect connectivity to the Exchange via a thirdparty reseller of connectivity, and/or trading of any options product, such as within the Over-the-Counter (OTC) markets. Indeed, there are currently 16 registered options exchanges that trade options (12 of which are not affiliated with Cboe), some of which have similar or lower connectivity fees.13 Based on publicly available information, no single options exchange has more than approximately 19% of the market share.14 Further, low barriers to entry mean that new exchanges may rapidly enter the market and offer additional substitute platforms to further compete with the Exchange and the products it offers. For example, there are 3 exchanges that have been added in the U.S. options markets in the last 5 years (i.e., Nasdaq MRX, LLC, MIAX Pearl, LLC, and MIAX Emerald LLC) and one additional options exchange that is expected to launch in 2023 (i.e., MEMX LLC). As noted above, there is no regulatory requirement that any market participant connect to any one options exchange, nor that any market participant connect at a particular connection speed or act in a particular capacity on the Exchange, or trade any particular product offered on an exchange. Moreover, membership is not a requirement to participate on the Exchange. Indeed, the Exchange is unaware of any one options exchange whose membership includes every registered broker-dealer. By way of example, while the Exchange currently has 52 TPHs, Cboe BZX has 61 members that trade options, and Cboe EDGX has 51 members that trade options. There is also no firm that is a Member of C2 Options only. Further, based on publicly available information regarding a sample of the Exchange’s competitors, NYSE American Options has 71 members,15 and NYSE Arca Options has 69 members,16 MIAX Options has 46 13 Id. 14 See Cboe Global Markets U.S. Options Market Volume Summary (June 27, 2023), available at https://markets.cboe.com/us/options/market_ statistics/. 15 See https://www.nyse.com/markets/americanoptions/membership#directory. 16 See https://www.nyse.com/markets/arcaoptions/membership#directory. E:\FR\FM\20SEN1.SGM 20SEN1 Federal Register / Vol. 88, No. 181 / Wednesday, September 20, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 members 17 and MIAX Pearl Options has 40 members.18 A market participant may also submit orders to the Exchange via a Member broker or a third-party reseller of connectivity. The Exchange notes that third-party non-TPHs also resell exchange connectivity. This indirect connectivity is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange (and thus not pay the Exchange’s connectivity fees), which alternative is already being used by non-TPHs and further constrains the price that the Exchange is able to charge for connectivity to its Exchange. The Exchange notes that it could, but chooses not to, preclude market participants from reselling its connectivity. The Exchange also chooses not to adopt fees that would be assessed to third-party resellers on a per customer basis (i.e., fee based on number of TPHs that connect to the Exchange indirectly via the third-party). Particularly, these third-party resellers may purchase the Exchange’s physical ports and resell access to such ports either alone or as part of a package of services. The Exchange notes that multiple TPHs are able to share a single physical port (and corresponding bandwidth) with other non-affiliated TPHs if purchased through a third-party re-seller.19 This allows resellers to mutualize the costs of the ports for market participants and provide such ports at a price that may be lower than the Exchange charges due to this mutualized connectivity. These thirdparty sellers may also provide an additional value to market participants as they may also manage and monitor these connections, and clients of these third-parties may also be able connect from the same colocation facility either from their own racks or using the thirdparty’s managed racks and infrastructure which may provide further cost-savings. Further, the Exchange does not receive any connectivity revenue when connectivity is resold by a third-party, which often is resold to multiple customers, some of whom are agency broker-dealers that have numerous customers of their own. Given the availability of third-party 17 See https://www.miaxglobal.com/sites/default/ files/page-files/MIAX_Options_Exchange_ Members_April_2023_04282023.pdf. 18 See https://www.miaxglobal.com/sites/default/ files/page-files/MIAX_Pearl_Exchange_Members_ 01172023_0.pdf. 19 For example, a third-party reseller may purchase one 10 Gbps physical port from the Exchange and resell that connectivity to three different market participants who may only need 3 Gbps each and leverage the same single port. VerDate Sep<11>2014 16:38 Sep 19, 2023 Jkt 259001 providers that also offer connectivity solutions, the Exchange believes participation on the Exchange remains affordable (notwithstanding the proposed fee change) for all market participants, including smaller trading firms that may be able to take advantage of lower costs that result from mutualized connectivity. Accordingly, the vigorous competition among national securities exchanges provides many alternatives for firms to voluntarily decide whether direct connectivity to the Exchange is appropriate and worthwhile, and as noted above, no broker-dealer is required to become a Member of the Exchange, let alone connect directly to it. In the event that a market participant views the Exchange’s proposed fee change as more or less attractive than the competition, that market participant can choose to connect to the Exchange indirectly or may choose not to connect to that exchange and connect instead to one or more of the other 12 non-Cboe affiliated options markets. Moreover, if the Exchange charges excessive fees, it may stand to lose not only connectivity revenues but also revenues associated with the execution of orders routed to it, and, to the extent applicable, market data revenues. The Exchange believes that this competitive dynamic imposes powerful restraints on the ability of any exchange to charge unreasonable fees for connectivity. Notwithstanding the foregoing, the Exchange still believes that the proposed fee increase is reasonable, equitably allocated and not unfairly discriminatory, even for market participants that determine to connect directly to the Exchange for business purposes, as those business reasons should presumably result in revenue capable of covering the proposed fee. 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 proposed fee change will not impact intramarket competition because it will apply to all similarly situated TPHs equally (i.e., all market participants that choose to purchase the 10 Gbps physical port). Additionally, the Exchange does not believe its proposed pricing will impose a barrier to entry to smaller participants and notes that its proposed connectivity pricing is associated with relative usage of the various market participants. For example, market participants with modest capacity needs can continue to buy the less expensive 1 Gbps physical port (which cost is not PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 64941 changing) or may choose to obtain access via a third-party re-seller. While pricing may be increased for the larger capacity physical ports, such options provide far more capacity and are purchased by those that consume more resources from the network. Accordingly, the proposed connectivity fees do not favor certain categories of market participants in a manner that would impose a burden on competition; rather, the allocation reflects the network resources consumed by the various size of market participants— lowest bandwidth consuming members pay the least, and highest bandwidth consuming members pays the most. The Exchange’s proposed fee is also still lower than some fees for similar connectivity on other exchanges and therefore may stimulate intermarket competition by attracting additional firms to connect to the Exchange or at least should not deter interested participants from connecting directly to the Exchange. Further, if the changes proposed herein are unattractive to market participants, the Exchange can, and likely will, see a decline in connectivity via 10 Gbps physical ports as a result. The Exchange operates in a highly competitive market in which market participants can determine whether or not to connect directly to the Exchange based on the value received compared to the cost of doing so. 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 20 and paragraph (f) of Rule 19b–4 21 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. 20 15 21 17 E:\FR\FM\20SEN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). 20SEN1 64942 Federal Register / Vol. 88, No. 181 / Wednesday, September 20, 2023 / Notices IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: • 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– C2–2023–020 on the subject line. Paper Comments lotter on DSK11XQN23PROD with NOTICES1 • 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–C2–2023–020. 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–C2–2023–020 and should be submitted on or before October 11, 2023. 16:38 Sep 19, 2023 [FR Doc. 2023–20314 Filed 9–19–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments VerDate Sep<11>2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Sherry R. Haywood, Assistant Secretary. Jkt 259001 [Release No. 34–98400; File No. SR–CBOE– 2023–045] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule September 14, 2023. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 1, 2023, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 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 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 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 September 1, 2023. 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 19% of the market share.3 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 or 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,4 which provides Trading Permit Holders (‘‘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. 3 See Cboe Global Markets U.S. Options Market Volume Summary (August 30, 2023), available at https://markets.cboe.com/us/options/market_ statistics/. 4 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. E:\FR\FM\20SEN1.SGM 20SEN1

Agencies

[Federal Register Volume 88, Number 181 (Wednesday, September 20, 2023)]
[Notices]
[Pages 64939-64942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20314]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98397; File No. SR-C2-2023-020]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fees Schedule Related to Physical Port Fees

September 14, 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 September 1, 2023, Cboe C2 Exchange, Inc. (the ``Exchange'' or 
``C2'') 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.
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    \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. 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 amend its fee schedule relating to 
physical connectivity fees.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
July 3, 2023 (SR-C2-2023-014). On September 1, 2023, the Exchange 
withdrew that filing and submitted this proposal.
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    By way of background, a physical port is utilized by a Member or 
non-Member to connect to the Exchange at the data centers where the 
Exchange's servers are located. The Exchange currently assesses the 
following physical connectivity fees for Trading Permit Holders 
(``TPHs'') and non-TPHs on a monthly basis: $2,500 per physical port 
for a 1 gigabit (``Gbps'') circuit and $7,500 per physical port for a 
10 Gbps circuit. The Exchange proposes to increase the monthly fee for 
10 Gbps physical ports from $7,500 to $8,500 per port. The Exchange 
notes the proposed fee change better enables it to continue to maintain 
and improve its market technology and services and also notes that the 
proposed fee amount, even as amended, continues to be in line with, or 
even lower than, amounts assessed by other exchanges for similar 
connections.\4\ The physical ports may also be used to access the 
Systems for the following affiliate exchanges and only one monthly fee 
currently (and will continue) to apply per port: Cboe BZX Exchange, 
Inc. (options and equities platforms), Cboe EDGX Exchange, Inc. 
(options and equities platforms), Cboe BYX Exchange, Inc., and Cboe 
EDGA Exchange, Inc. (``Affiliate Exchanges'').\5\
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    \4\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General 
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges 
charge a monthly fee of $15,000 for each 10Gbps Ultra fiber 
connection to the respective exchange, which is analogous to the 
Exchange's 10Gbps physical port. See also New York Stock Exchange 
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE 
National, Inc. Connectivity Fee Schedule, which provides that 10 
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps 
physical port) are assessed $22,000 per month, per port.
    \5\ The Affiliate Exchanges are also submitting contemporaneous 
identical rule filings.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the

[[Page 64940]]

``Act'') and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\6\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \7\ 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) \8\ 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) \9\ of the Act, 
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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed fee change is reasonable as it 
reflects a moderate increase in physical connectivity fees for 10 Gbps 
physical ports. Further, the current 10 Gbps physical port fee has 
remained unchanged since June 2018.\10\ Since its last increase 5 years 
ago however, there has been notable inflation. Particularly, the dollar 
has had an average inflation rate of 3.9% per year between 2018 and 
today, producing a cumulative price increase of approximately 21.1% 
inflation since the fee for the 10 Gbps physical port was last 
modified.\11\ Accordingly, the Exchange believes the proposed fee is 
reasonable as it represents only an approximate 13% increase from the 
rates adopted five years ago, notwithstanding the cumulative rate of 
21.1%.
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    \10\ See Securities and Exchange Release No. 83455 (June 15, 
2018), 83 FR 28892 (June 21, 2018) (SR-C2-2018-014).
    \11\ See https://www.officialdata.org/us/inflation/2010?amount=1.
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    The Exchange also believes the proposed fee is reasonable as it is 
still in line with, or even lower than, amounts assessed by other 
exchanges for similar connections.\12\ As noted above, the proposed fee 
is also the same as is concurrently being proposed for its Affiliate 
Exchanges. Further, TPHs are able to utilize a single port to connect 
to any of the Affiliate Exchanges with no additional fee assessed for 
that same physical port. Particularly, the Exchange believes the 
proposed monthly per port fee is reasonable, equitable and not unfairly 
discriminatory as it is assessed only once, even if it connects with 
another affiliate exchange since only one port is being used and the 
Exchange does not wish to charge multiple fees for the same port. 
Indeed, the Exchange notes that several ports are in fact purchased and 
utilized across one or more of the Exchange's affiliated Exchanges (and 
charged only once).
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    \12\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General 
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges 
charge a monthly fee of $15,000 for each 10Gbps Ultra fiber 
connection to the respective exchange, which is analogous to the 
Exchange's 10Gbps physical port. See also New York Stock Exchange 
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE 
National, Inc. Connectivity Fee Schedule, which provides that 10 
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps 
physical port) are assessed $22,000 per month, per port.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed fee change is not 
unfairly discriminatory because it would be assessed uniformly across 
all market participants that purchase the physical ports. The Exchange 
believes increasing the fee for 10 Gbps physical ports and charging a 
higher fee as compared to the 1 Gbps physical port is equitable as the 
1 Gbps physical port is \1/10\th the size of the 10 Gbps physical port 
and therefore does not offer access to many of the products and 
services offered by the Exchange (e.g., ability to receive certain 
market data products). Thus, the value of the 1 Gbps alternative is 
lower than the value of the 10 Gbps alternative, when measured based on 
the type of Exchange access it offers. Moreover, market participants 
that purchase 10 Gbps physical ports utilize the most bandwidth and 
therefore consume the most resources from the network. As such, the 
Exchange believes the proposed fee change for 10 Gbps physical ports is 
reasonably and appropriately allocated.
    The Exchange also notes TPHs and non-TPHs will continue to choose 
the method of connectivity based on their specific needs and no broker-
dealer is required to become a TPH of, let alone connect directly to, 
the Exchange. There is also no regulatory requirement that any market 
participant connect to any one particular exchange. Moreover, direct 
connectivity is not a requirement to participate on the Exchange. The 
Exchange also believes substitutable products and services are 
available to market participants, including, among other things, other 
options exchanges that a market participant may connect to in lieu of 
the Exchange, indirect connectivity to the Exchange via a third-party 
reseller of connectivity, and/or trading of any options product, such 
as within the Over-the-Counter (OTC) markets. Indeed, there are 
currently 16 registered options exchanges that trade options (12 of 
which are not affiliated with Cboe), some of which have similar or 
lower connectivity fees.\13\ Based on publicly available information, 
no single options exchange has more than approximately 19% of the 
market share.\14\ Further, low barriers to entry mean that new 
exchanges may rapidly enter the market and offer additional substitute 
platforms to further compete with the Exchange and the products it 
offers. For example, there are 3 exchanges that have been added in the 
U.S. options markets in the last 5 years (i.e., Nasdaq MRX, LLC, MIAX 
Pearl, LLC, and MIAX Emerald LLC) and one additional options exchange 
that is expected to launch in 2023 (i.e., MEMX LLC).
---------------------------------------------------------------------------

    \13\ Id.
    \14\ See Cboe Global Markets U.S. Options Market Volume Summary 
(June 27, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    As noted above, there is no regulatory requirement that any market 
participant connect to any one options exchange, nor that any market 
participant connect at a particular connection speed or act in a 
particular capacity on the Exchange, or trade any particular product 
offered on an exchange. Moreover, membership is not a requirement to 
participate on the Exchange. Indeed, the Exchange is unaware of any one 
options exchange whose membership includes every registered broker-
dealer. By way of example, while the Exchange currently has 52 TPHs, 
Cboe BZX has 61 members that trade options, and Cboe EDGX has 51 
members that trade options. There is also no firm that is a Member of 
C2 Options only. Further, based on publicly available information 
regarding a sample of the Exchange's competitors, NYSE American Options 
has 71 members,\15\ and NYSE Arca Options has 69 members,\16\ MIAX 
Options has 46

[[Page 64941]]

members \17\ and MIAX Pearl Options has 40 members.\18\
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    \15\ See https://www.nyse.com/markets/american-options/membership#directory.
    \16\ See https://www.nyse.com/markets/arca-options/membership#directory.
    \17\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf.
    \18\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf.
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    A market participant may also submit orders to the Exchange via a 
Member broker or a third-party reseller of connectivity. The Exchange 
notes that third-party non-TPHs also resell exchange connectivity. This 
indirect connectivity is another viable alternative for market 
participants to trade on the Exchange without connecting directly to 
the Exchange (and thus not pay the Exchange's connectivity fees), which 
alternative is already being used by non-TPHs and further constrains 
the price that the Exchange is able to charge for connectivity to its 
Exchange. The Exchange notes that it could, but chooses not to, 
preclude market participants from reselling its connectivity. The 
Exchange also chooses not to adopt fees that would be assessed to 
third-party resellers on a per customer basis (i.e., fee based on 
number of TPHs that connect to the Exchange indirectly via the third-
party). Particularly, these third-party resellers may purchase the 
Exchange's physical ports and resell access to such ports either alone 
or as part of a package of services. The Exchange notes that multiple 
TPHs are able to share a single physical port (and corresponding 
bandwidth) with other non-affiliated TPHs if purchased through a third-
party re-seller.\19\ This allows resellers to mutualize the costs of 
the ports for market participants and provide such ports at a price 
that may be lower than the Exchange charges due to this mutualized 
connectivity. These third-party sellers may also provide an additional 
value to market participants as they may also manage and monitor these 
connections, and clients of these third-parties may also be able 
connect from the same colocation facility either from their own racks 
or using the third-party's managed racks and infrastructure which may 
provide further cost-savings. Further, the Exchange does not receive 
any connectivity revenue when connectivity is resold by a third-party, 
which often is resold to multiple customers, some of whom are agency 
broker-dealers that have numerous customers of their own. Given the 
availability of third-party providers that also offer connectivity 
solutions, the Exchange believes participation on the Exchange remains 
affordable (notwithstanding the proposed fee change) for all market 
participants, including smaller trading firms that may be able to take 
advantage of lower costs that result from mutualized connectivity.
---------------------------------------------------------------------------

    \19\ For example, a third-party reseller may purchase one 10 
Gbps physical port from the Exchange and resell that connectivity to 
three different market participants who may only need 3 Gbps each 
and leverage the same single port.
---------------------------------------------------------------------------

    Accordingly, the vigorous competition among national securities 
exchanges provides many alternatives for firms to voluntarily decide 
whether direct connectivity to the Exchange is appropriate and 
worthwhile, and as noted above, no broker-dealer is required to become 
a Member of the Exchange, let alone connect directly to it. In the 
event that a market participant views the Exchange's proposed fee 
change as more or less attractive than the competition, that market 
participant can choose to connect to the Exchange indirectly or may 
choose not to connect to that exchange and connect instead to one or 
more of the other 12 non-Cboe affiliated options markets. Moreover, if 
the Exchange charges excessive fees, it may stand to lose not only 
connectivity revenues but also revenues associated with the execution 
of orders routed to it, and, to the extent applicable, market data 
revenues. The Exchange believes that this competitive dynamic imposes 
powerful restraints on the ability of any exchange to charge 
unreasonable fees for connectivity. Notwithstanding the foregoing, the 
Exchange still believes that the proposed fee increase is reasonable, 
equitably allocated and not unfairly discriminatory, even for market 
participants that determine to connect directly to the Exchange for 
business purposes, as those business reasons should presumably result 
in revenue capable of covering the proposed fee.

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 proposed fee change will 
not impact intramarket competition because it will apply to all 
similarly situated TPHs equally (i.e., all market participants that 
choose to purchase the 10 Gbps physical port). Additionally, the 
Exchange does not believe its proposed pricing will impose a barrier to 
entry to smaller participants and notes that its proposed connectivity 
pricing is associated with relative usage of the various market 
participants. For example, market participants with modest capacity 
needs can continue to buy the less expensive 1 Gbps physical port 
(which cost is not changing) or may choose to obtain access via a 
third-party re-seller. While pricing may be increased for the larger 
capacity physical ports, such options provide far more capacity and are 
purchased by those that consume more resources from the network. 
Accordingly, the proposed connectivity fees do not favor certain 
categories of market participants in a manner that would impose a 
burden on competition; rather, the allocation reflects the network 
resources consumed by the various size of market participants--lowest 
bandwidth consuming members pay the least, and highest bandwidth 
consuming members pays the most.
    The Exchange's proposed fee is also still lower than some fees for 
similar connectivity on other exchanges and therefore may stimulate 
intermarket competition by attracting additional firms to connect to 
the Exchange or at least should not deter interested participants from 
connecting directly to the Exchange. Further, if the changes proposed 
herein are unattractive to market participants, the Exchange can, and 
likely will, see a decline in connectivity via 10 Gbps physical ports 
as a result. The Exchange operates in a highly competitive market in 
which market participants can determine whether or not to connect 
directly to the Exchange based on the value received compared to the 
cost of doing so.

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 \20\ and paragraph (f) of Rule 19b-4 \21\ 
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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f).

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[[Page 64942]]

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-C2-2023-020 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-C2-2023-020. 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-C2-2023-020 and should be 
submitted on or before October 11, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20314 Filed 9-19-23; 8:45 am]
BILLING CODE 8011-01-P
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