Self-Regulatory Organizations; Cboe Exchange, Inc.; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Its Fee Schedule Relating to the Options Regulatory Fee, 68793-68798 [2023-21940]
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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
investors and the public interest and
would therefore be consistent with
Section 6(b)(5) 8 of the Act. The
proposed rule change would
accordingly foster cooperation and
coordination with persons engaged in
facilitating transactions in securities and
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system.
Finally, the Exchange further believes
that the proposed change would be
consistent with Section 6(b)(1) 9 of the
Act because it would provide increased
clarity regarding the Exchange’s ability
to enforce compliance with its rules by
persons associated with an ETP Holder,
thereby reducing any potential
confusion with respect to the
Exchange’s interpretation or application
of its rules. As such, the proposed
change would enable the Exchange to be
so organized as to have the capacity to
be able to enforce compliance by its
exchange members and persons
associated with its exchange members
with the provisions of the Act, the rules
and regulations thereunder, and the
rules of the Exchange, consistent with
Section 6(b)(1) 10 of the Act.
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 rule change is not intended to
address competitive issues but rather is
concerned solely with adding clarity
and transparency to the Exchange’s
rules and providing greater
harmonization with the rules of its
affiliate NYSE and the approved rules of
FINRA and the Nasdaq Exchanges.
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.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 11 and Rule
19b–4(f)(6) 12 thereunder. Because the
8 15
U.S.C. 78f(b)(5).
U.S.C. 78f(b)(1).
10 15 U.S.C. 78f(b)(1).
11 15 U.S.C. 78s(b)(3)(A)(iii).
12 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
9 15
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proposed rule change does not: (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 13 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–
NYSENAT–2023–21on 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–NYSENAT–2023–21. 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
the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
13 15 U.S.C. 78s(b)(2)(B).
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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–NYSENAT–2023–21 and should be
submitted on or before October 25,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–21950 Filed 10–3–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98596; File No. SR–CBOE–
2023–038]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Suspension of and
Order Instituting Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To Amend Its Fee Schedule Relating to
the Options Regulatory Fee
September 28, 2023.
I. Introduction
On August 1, 2023, Cboe Exchange,
Inc. (‘‘Cboe’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change (file number SR–
CBOE–2023–038) to increase the
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
amount of its Options Regulatory Fee
(‘‘ORF’’).3 The proposed rule change
was immediately effective upon filing
with the Commission pursuant to
Section 19(b)(3)(A) of the Act.4 The
proposed rule change was published for
comment in the Federal Register on
August 16, 2023.5
Pursuant to Section 19(b)(3)(C) of the
Act,6 the Commission is hereby: (1)
temporarily suspending file number SR–
CBOE–2023–038; and (2) instituting
proceedings to determine whether to
approve or disapprove file number SR–
CBOE–2023–038.
II. Description of the Proposed Rule
Change
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The Exchange proposes to increase
the amount of its ORF from $0.0017 to
$0.0030 per contract.7 The Exchange
assesses the ORF 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.8 The Exchange states
that ‘‘[r]evenue 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 option
business. . . .’’ 9 Noting that it monitors
the amount of ORF revenue it collects
‘‘to ensure that it, in combination with
its other regulatory fees and fines, does
not exceed the Exchange’s total
regulatory costs,’’ the Exchange
proposed to increase the amount of its
ORF ‘‘based on the Exchange’s
estimated projections for its regulatory
costs, which have increased, coupled
with a projected decrease in the
Exchange’s other non-ORF regulatory
fees.’’ 10
3 See Securities Exchange Act Release No. 98106
(August 10, 2023), 88 FR 55796 (August 16, 2023)
(‘‘Notice’’).
4 15 U.S.C. 78s(b)(3)(A). A proposed rule change
may take effect upon filing with the Commission if
it is designated by the exchange as ‘‘establishing or
changing a due, fee, or other charge imposed by the
self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory
organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii).
5 See Notice, supra note 3.
6 15 U.S.C. 78s(b)(3)(C).
7 See Notice, supra note 3, at 55796.
8 See id. The ORF is collected by OCC on behalf
of the Exchange from either the Clearing Trading
Permit Holder (‘‘CTPH’’) or the non-CTPH that
ultimately clears the transaction. See id.
9 Id. at 55796.
10 Id. at 55797.
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III. Suspension of the Proposed Rule
Change
Pursuant to Section 19(b)(3)(C) of the
Act,11 at any time within 60 days of the
date of filing of an immediately effective
proposed rule change pursuant to
Section 19(b)(1) of the Act,12 the
Commission summarily may
temporarily suspend the change in the
rules of a self-regulatory organization
(‘‘SRO’’) 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. As discussed below, the
Commission believes a temporary
suspension of the proposed rule change
is necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act to allow for
additional analysis of the proposed rule
change’s consistency with the Act and
the rules thereunder.
When exchanges file their proposed
rule changes with the Commission,
including fee filings like the Exchange’s
present proposal, they are required to
provide a statement supporting the
proposal’s basis under the Act and the
rules and regulations thereunder
applicable to the exchange.13 The
instructions to Form 19b–4, on which
exchanges file their proposed rule
changes, specify that such statement
‘‘should be sufficiently detailed and
specific to support a finding that the
proposed rule change is consistent with
[those] requirements.’’ 14
Section 6 of the Act, including
Sections 6(b)(4), (5), and (8), require the
rules of an exchange to: (1) provide for
the equitable allocation of reasonable
fees among members, issuers, and other
persons using the exchange’s
facilities; 15 (2) perfect the mechanism of
a free and open market and a national
market system, protect investors and the
public interest, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or
dealers; 16 and (3) not impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.17
In justifying its proposal, the
Exchange stated that its proposal ‘‘is
reasonable because [the proposed
increase] would help ensure that
revenue collected from the ORF, in
combination with other regulatory fees
and fines, would help offset, but not
exceed, the Exchange’s total regulatory
costs.’’ 18 According to the Exchange, its
ORF is designed to ‘‘generate revenues
that would be less than or equal to 75%
of the Exchange’s regulatory costs.’’ 19
The Exchange stated that the proposed
increase is reasonable based on ‘‘recent
options volumes, coupled with the
anticipated regulatory fees and
anticipated reductions in other
regulatory fees.’’ 20 The Exchange
further stated that ‘‘although recent
options volumes have increased, it has
not increased its ORF rate in four years’’
and ‘‘has reduced its ORF rates twice’’
since 2019.21
The Exchange also asserted that the
ORF is equitably allocated and not
unfairly discriminatory because higher
fees are assessed ‘‘to those TPHs that
require more Exchange regulatory
services based on the amount of
customer options business they
conduct.’’ 22 In addition, the Exchange
stated that ‘‘[r]egulating 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.’’ 23
Further, the Exchange stated that it has
‘‘broad regulatory responsibilities with
respect to its TPHs’ activities,
irrespective of where their transactions
take place’’ and therefore the
surveillance programs for customer
trading activity ‘‘may require the
Exchange to look at activity across all
markets.’’ 24 Consequently, 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.’’ 25
In temporarily suspending the
Exchange’s proposed rule change, the
Commission intends to further consider
whether the proposal to increase the
amount of the ORF is consistent with
the statutory requirements applicable to
a national securities exchange under the
Act. In particular, the Commission will
consider whether the proposed rule
18 Notice,
supra note 3, at 55797.
19 Id.
11 15
U.S.C. 78s(b)(3)(C).
U.S.C. 78s(b)(1).
13 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose
of, and Statutory Basis for, the Proposed Rule
Change’’).
14 Id.
15 15 U.S.C. 78f(b)(4).
16 15 U.S.C. 78f(b)(5).
17 15 U.S.C. 78f(b)(8).
12 15
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20 Id. (stating that ‘‘the proposed change is
reasonable as it would offset the anticipated
increased regulatory costs, while still not exceeding
75% of the Exchange’s total regulatory costs.’’).
21 Id. No exchange has increased its ORF rate
since 2019.
22 Notice, supra note 3, at 55797.
23 Id.
24 Id.
25 Id. at 55796.
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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
change satisfies the standards under the
Act and the rules thereunder requiring,
among other things, that an exchange’s
rules provide for the equitable
allocation of reasonable fees among
members, issuers, and other persons
using its facilities; not permit unfair
discrimination between customers,
issuers, brokers or dealers; and do not
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.26
Therefore, the Commission finds that
it is necessary or appropriate in the
public interest, for the protection of
investors, and otherwise in furtherance
of the purposes of the Act, to
temporarily suspend the proposed rule
change.27
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IV. Proceedings To Determine Whether
To Approve or Disapprove the
Proposed Rule Change
In addition to temporarily suspending
the proposal, the Commission also
hereby institutes proceedings pursuant
to Sections 19(b)(3)(C) 28 and 19(b)(2)(B)
of the Act 29 to determine whether the
Exchange’s proposed rule change
should be approved or disapproved.
Institution of proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, the
Commission seeks and encourages
interested persons to provide additional
comment on the proposed rule change
to inform the Commission’s analysis of
whether to approve or disapprove the
proposed rule change.
Pursuant to Section 19(b)(2)(B) of the
Act,30 the Commission is providing
notice of the grounds for possible
disapproval under consideration:
• Whether the Exchange has
demonstrated how its proposed fee is
consistent with Section 6(b)(4) of the
26 See 15 U.S.C. 78f(b)(4), (5), and (8),
respectively.
27 For purposes of temporarily suspending the
proposed rule change, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
28 15 U.S.C. 78s(b)(3)(C). Once the Commission
temporarily suspends a proposed rule change,
Section 19(b)(3)(C) of the Act requires that the
Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule
change should be approved or disapproved.
29 15 U.S.C. 78s(b)(3)(c).
30 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the
Act also provides that proceedings to determine
whether to disapprove a proposed rule change must
be concluded within 180 days of the date of
publication of notice of the filing of the proposed
rule change. See id. The time for conclusion of the
proceedings may be extended for up to 60 days if
the Commission finds good cause for such
extension and publishes its reasons for so finding,
or if the exchange consents to the longer period. See
id.
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Act, which requires that the rules of a
national securities exchange ‘‘provide
for the equitable allocation of
reasonable dues, fees, and other charges
among its members and issuers and
other persons using its facilities’’ 31
(emphasis added);
• Whether the Exchange has
demonstrated how its proposed fee is
consistent with Section 6(b)(5) of the
Act, which requires, among other
things, that the rules of a national
securities exchange not be ‘‘designed to
permit unfair discrimination between
customers, issuers, brokers, or
dealers’’ 32 (emphasis added); and
• Whether the Exchange has
demonstrated how its proposed fee is
consistent with Section 6(b)(8) of the
Act, which requires that the rules of a
national securities exchange ‘‘not
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of [the Act].’’ 33
As noted above, the proposal purports
to increase the amount of the ORF in
response to ‘‘recent options volume’’ 34
and the Exchange’s estimated
projections for its regulatory costs and
anticipated regulatory revenues in a
manner that ‘‘is designed to recover a
material portion of the regulatory costs
to the Exchange of the supervision and
regulation of TPH customer options
business. . . .’’ 35 However, those and
other statements in support of its
proposed regulatory fee increase are
general in nature and lack sufficient
detail and specificity.
For example, the Exchange does not
discuss what ‘‘recent options volume’’ it
considered or how that volume has
impacted its regulatory expenses and
regulatory revenues.36
Further, the Exchange does not
elaborate on the ‘‘material portion’’ of
options regulatory expenses that it seeks
to recover from the ORF and why the
threshold it selected (i.e., that ORF will
‘‘not exceed more than 75% of total
31 15
U.S.C. 78f(b)(4).
U.S.C. 78f(b)(5).
33 15 U.S.C. 78f(b)(8).
34 Notice, supra note 3, at 55797.
35 Notice, supra note 3, at 55796.
36 In recent years, several options exchanges have
filed proposed rule changes to reduce their
respective ORF rates due to unanticipated and
sustained growth in customer options volume. See,
e.g., Securities Exchange Act Release Nos. 98054
(August 4, 2023) 88 FR 54362 (August 10, 2023)
(SR–ISE–2023–14) (reducing ORF rate from $0.0014
to $0.0013 because of continued options volume
growth in 2023 and noting in particular that March
2023 options volume was higher than any month
in 2022); 98056 (August 4, 2023), 88 FR 54381
(August 10, 2023) (SR–GEMX–2023–09) (reducing
ORF rate from $0.0013 to $0.0012); and 94065
(January 26, 2023), 87 FR 5548 (February 1, 2022)
(SR–Phlx–2022–03) (reducing ORF rate from
$0.0042 to $0.0034).
32 15
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68795
annual regulatory costs’’) correlates to
the degree of regulatory responsibility
and expenses borne by the Exchange as
it relates to the regulation of customer
options transactions.37 For example, the
Exchange has not provided any
quantifiable information to support its
assertion that regulating customer
trading activity is ‘‘much more laborintensive’’ and therefore, more costly.
The Exchange does not claim in its
filing that its regulation of customer
activity consumes 75% of total
regulatory costs nor does it assert that
customer activity requires a level of
effort that occupies 75% of the
regulatory department’s attention. The
Exchange does not sufficiently analyze
how funding 75% of its total regulatory
costs (including direct and indirect
expenses) from ORF, e.g., constitutes an
equitable allocation of reasonable fees
among members, and it does not
provide sufficient detail to allow the
Commission and commenters to
consider those issues.
Further, the Exchange has not
provided specific or detailed
information regarding the regulatory
cost associated with monitoring and
surveilling exchange activity compared
to off exchange activity. In particular,
the Exchange collects ORF on
executions that do not occur on the
Exchange. With a market share under
20% based on matched volume, that
means that the Exchange seeks to collect
ORF on the over 80% of executions that
happen elsewhere.38 However, the
Exchange has not provided information
or analysis in its filing to support the
collection of ORF on away activity. The
proposed ORF rate is the same for onexchange and off-exchange activity, so
the proposal would result in the
Exchange funding a very significant
portion of its total regulatory costs from
a fee charged on contracts that execute
away from the Exchange. The Exchange
does not provide a sufficiently detailed
analysis or present specific facts to
show the level of regulatory effort and
regulatory costs it expends on contracts
that execute on other exchanges.
Without more information in the filing
on the Exchange’s regulatory revenues,
regulatory costs, and regulatory
activities to supervise and regulate
members, specifically, e.g., customer
versus non-customer activity and onexchange versus off-exchange activity,
the proposal lacks specific information
that can speak to whether the proposed
37 See
Notice, supra note 3, at 55796.
share statistic as reported by the
Exchange on September 26, 2023, available at
https://www.cboe.com/us/options/market_
statistics/.
38 Market
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ORF is reasonable, equitably allocated,
and not unfairly discriminatory,
particularly given that the ORF is
assessed only on transactions that clear
in the ‘‘customer’’ range and regardless
of the exchange on which the
transaction occurs.
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the [Act] and the rules
and regulations issued thereunder . . .
is on the [SRO] that proposed the rule
change.’’ 39 The description of a
proposed rule change, its purpose and
operation, its effect, and a legal analysis
of its consistency with applicable
requirements must all be sufficiently
detailed and specific to support an
affirmative Commission finding,40 and
any failure of an SRO to provide this
information may result in the
Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.41
As explained above, the Exchange’s
statements in support of the proposed
rule change are general in nature and
lack detail and specificity. The
Commission cannot unquestionably rely
on an exchange’s statements and
representations.42 Instead, the
Commission needs sufficient
information to support independent
findings that a proposal is consistent
with the requirements of the Act.43
Here, such an analysis includes, among
other things, whether the proposed ORF
is an equitable allocation of reasonable
dues, fees, and other changes among the
Exchange’s members, as well as whether
the proposed ORF is equitable and not
unfairly discriminatory.
The Commission needs additional
information from the Exchange to
demonstrate how the proposal meets
those and other applicable requirements
of the Act, to assess whether the
Exchange has established a sufficient
nexus between the proposed ORF and
the Exchange’s regulation of customer
trading activity both on and off
exchange. While the Commission
broadly solicits comment from all
interested parties on the proposal, the
Commission believes that the Exchange
alone has access to much of the specific
detail necessary to fully address these
questions and concerns because these
matters involve qualitative and
39 17
CFR 201.700(b)(3).
id.
41 See id.
42 See Susquehanna Int’l Grp., LLP v. SEC, 866
F.3d 442, 447 (August 8, 2017).
43 See id.
40 See
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quantitative information about the
Exchange’s operations. Specifically,
among other things, the Commission
asks that commenters address the
sufficiency of the Exchange’s statements
in support of the proposal contained in
the Notice.44 In particular, the
Commission seeks comment on the
following aspects of the proposal and
asks commenters to submit data where
appropriate to support their views:
1. Information on the Exchange’s
Projected Regulatory Costs and
Revenues. The Exchange states that its
proposed ORF rate increase is
reasonable after considering recent
options volume, coupled with its
projected increase in regulatory costs
and anticipated reduction in non-ORF
regulatory fees. The Exchange notes that
its regulatory costs include direct
regulatory expenses and certain indirect
expenses for work ‘‘allocated in support
of the regulatory function.’’ 45 According
to the Exchange, indirect regulatory
expenses (including, among other
things, human resources, legal,
compliance, information technology,
facilities and accounting) are estimated
to be approximately 30% of the
Exchange’s total regulatory costs for
2023 and direct regulatory expenses are
estimated to be approximately 70% of
the Exchange’s total regulatory costs for
2023. The Exchange did not provide in
the filing any further analysis regarding
its projected regulatory cost increases,
its anticipated non-ORF regulatory
revenue decreases or in what way recent
options volume was considered. Do
commenters believe the Exchange has
provided adequate detail regarding
these metrics? If not, what additional
information should be provided to
demonstrate how the proposal is
consistent with the Act? How have
recent options volumes impacted the
Exchange’s regulatory expenses and
revenues? How should the Commission
consider the Exchange’s proposal in
light of recent proposals from other
exchanges to reduce their ORF on
account of increasing customer options
volume placing them at risk of overcollecting ORF in excess of their
regulatory expenses?
2. Information on the Exchange’s
Imposition of ORF on Customer Orders.
The Exchange states that it is its
‘‘practice that revenue generated from
ORF not exceed more that 75% of total
annual regulatory costs.’’ 46 Do
commenters believe that the Exchange
has sufficiently analyzed and justified
its proposal to fund 75% of its total
Notice, supra note 3.
Notice, supra note 3, at 55796.
46 See id.
regulatory expenses from a fee imposed
only on options transactions clearing in
the customer-range, where those
expenses include the regulation of
transactions that clear in the noncustomer-range (e.g., broker-dealer and
market maker trades)? In addition,
explaining that the proposed ORF
would be charged to ‘‘all TPHs on all
their transactions that clear in the
customer-range at the OCC,’’ the
Exchange states that such methodology
‘‘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.’’ 47 The
Exchange further asserts that
‘‘[r]egulating customer trading activity is
much more labor intensive and requires
greater expenditure of human and
technical resources than regulating noncustomer trading activity, which tends
to be more automated and less laborintensive.’’ 48 According to the
Exchange, ‘‘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 transaction) of its regulatory
program.’’ 49 Do commenters believe
that the Exchange has provided
sufficiently detailed quantitative and
qualitative evidence in support of this
aspect of its proposal? Specifically,
examples of information that would be
helpful to demonstrate how the
assessment of ORF only on orders that
clear in the customer-range correlates to
the level of effort and costs the
Exchange expends to regulate customer
options transactions include: (a) the
percentage of volume that clears in the
customer-range both on and off the
Exchange compared to the percentage of
volume that clears in a range other than
customer both on and off Exchange; (b)
the percentage of the Exchange’s
regulatory budget attributable to the
regulation of orders that clear in the
customer-range compared to the
percentage of the Exchange’s regulatory
budget attributable to orders that clear
in a range other than customer; (c) the
percentage of the Exchange’s regulatory
level of effort attributable to the
regulation of orders that clear in the
customer-range compared to the
percentage of the Exchange’s regulatory
level effort attributable to orders that
clear in a range other than customer;
and (d) the proportion of the Exchange’s
revenues, as reported in the most recent
44 See
47 See
45 See
48 See
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id. at 55797.
id.
49 See id.
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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
annual financials it submitted on Form
1, represented by ORF revenue.
3. Information on the Exchange’s
Assessment of ORF on Away-Market
Activity. The Exchange states that ‘‘it
has broad regulatory responsibilities
with respect to TPHs’ activities,
irrespective of where their transactions
take place.’’ 50 The Exchange therefore
believes that it is appropriate to impose
the ORF on ‘‘all customer-range
transactions cleared by a TPH, even if
the transactions do not take place on the
Exchange.’’ 51 Do commenters believe
that the Exchange has provided
sufficiently detailed quantitative and
qualitative evidence in support of how
the assessment of ORF on away-market
transactions correlates to the effort it
expends on regulating away-market
transactions compared to the level of
effort the Exchange invests in regulating
transactions on Exchange? Specifically,
examples of information that would be
helpful to assess the application of the
ORF to executions that do not occur on
the Exchange include: (a) the percentage
of the Exchange’s overall regulatory
budget attributable to the regulation of
away-market transactions compared to
the percentage of the Exchange’s overall
regulatory budget allocated to regulating
on-Exchange transactions; (b) the
percentage of the Exchange’s regulatory
level of effort attributable to the
regulation of away-market transactions
compared to the percentage of the
Exchange’s regulatory level of effort
attributable to the regulation of orders
that execute on the Exchange; (c) the
percentage of ORF revenue that is
derived from away-market transactions
compared to the percentage of ORF
revenue that is derived from executions
on the Exchange; and (d) more detail on
the regulatory activities the exchange
performs for trades that do not occur on
the Exchange.
4. Information on the Exchange’s
Regulatory Program Concerning
Clearing Brokers. The Exchange states
that ORF is collected on ‘‘customer’’
range options transactions cleared by a
CTPH regardless of the exchange on
which the transaction occurs, including
from a non-CTPH.52 Do commenters
believe that the Exchange has provided
sufficiently detailed quantitative and
qualitative evidence in support of this
aspect of its proposal? Specifically,
examples of information that would be
helpful to provide context for the
collection of ORF from member and
non-member clearing brokers and
determine whether a sufficient nexus
50 See
id.
id. at 55796.
52 See id. at 55796.
51 See
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20:21 Oct 03, 2023
Jkt 262001
exists between the ORF and the
Exchange’s regulation of CTPH clearing
activity, include: (a) the percentage of
the Exchange’s regulatory expenses and
level of regulatory activity that pertain
to clearance and settlement activity and
the percentage this accounts for with
respect to the Exchange’s overall
regulatory costs and regulatory activity,
and if that differs depending on whether
the CTPH is an Exchange member or not
and whether the contract executes on
the Exchange or not; (b) the number of
CTPHs compared to the number of nonCTPHs from which ORF is collected on
behalf of the Exchange; and (c) the
percentage of ORF revenues collected
from member CTPHs compared to the
percentage of ORF revenue collected
from non-members.
The Commission is instituting
proceedings to allow for additional
consideration and comment on the
issues raised herein, including as to
whether the proposed fees are
consistent with the Act, and
specifically, with the requirements that
exchange fees be reasonable, equitably
allocated, and not unfairly
discriminatory.53
V. Commission’s Solicitation of
Comments
The Commission requests written
views, data, and arguments with respect
to the concerns identified above as well
as any other relevant concerns. Such
comments should be submitted by
October 25, 2023. Rebuttal comments
should be submitted by November 8,
2023. Although there do not appear to
be any issues relevant to approval or
disapproval which would be facilitated
by an oral presentation of views, data,
and arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.54
The Commission asks that
commenters address the sufficiency and
merit of the Exchange’s statements in
support of the proposal, in addition to
any other comments they may wish to
submit about the proposed rule change.
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.
53 See
15 U.S.C. 78f(b)(4), (5), and (8).
54 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act
grants the Commission flexibility to determine what
type of proceeding—either oral or notice and
opportunity for written comments—is appropriate
for consideration of a particular proposal by an
SRO. See Securities Acts Amendments of 1975,
Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249,
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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68797
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CBOE–2023–038 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CBOE–2023–038. 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–CBOE–2023–038 and should be
submitted on or before October 25,
2023. Rebuttal comments should be
submitted by November 8, 2023.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(3)(C) of the Act,55 that file
number SR–CBOE–2023–038, be and
hereby is, temporarily suspended. In
addition, the Commission is instituting
proceedings to determine whether the
55 15
E:\FR\FM\04OCN1.SGM
U.S.C. 78s(b)(3)(C).
04OCN1
68798
Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
proposed rule change should be
approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.56
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–21940 Filed 10–3–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98647; File No. SR–
CboeBYX–2023–013]
Self-Regulatory Organizations; Cboe
BYX Exchange, Inc.; Suspension of
and Order Instituting Proceedings To
Determine Whether To Approve or
Disapprove Proposed Rule Change To
Amend Its Fee Schedule Related to
Physical Port Fees
September 29, 2023.
I. Introduction
On September 1, 2023, Cboe BYX
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘BYX’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 a
proposed rule change (File Number SR–
CboeBYX–2023–013) to amend its fee
schedule to increase the monthly fee for
10 gigabit (‘‘Gb’’) physical ports. The
proposed rule change was immediately
effective upon filing with the
Commission pursuant to Section
19(b)(3)(A) of the Act.3 The proposed
rule change was published for comment
in the Federal Register on September
20, 2023.4 Pursuant to Section
19(b)(3)(C) of the Act,5 the Commission
is hereby: (1) temporarily suspending
the proposed rule change; and (2)
instituting proceedings to determine
whether to approve or disapprove the
proposed rule change.
II. Background and Description of the
Proposed Rule Change
The Exchange proposes to amend its
fee schedule. The Exchange proposes to
increase the monthly fee for 10 Gb
III. Suspension of the Proposed Rule
Change
Pursuant to Section 19(b)(3)(C) of the
Act,8 at any time within 60 days of the
date of filing of an immediately effective
proposed rule change pursuant to
Section 19(b)(1) of the Act,9 the
Commission summarily may
temporarily suspend the change in the
rules of a self-regulatory organization
(‘‘SRO’’) 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. The Commission believes a
temporary suspension of the proposed
rule change is necessary and
appropriate to allow for additional
analysis of the proposed rule change’s
consistency with the Act and the rules
thereunder.
In support of the proposal, the
Exchange states its belief that the
proposed fee change is reasonable as it
reflects a moderate increase in physical
connectivity fees for 10 Gb physical
ports.10 The Exchange states that the
current 10 Gb physical port fee has
remained unchanged since June 2018.11
The Exchange states that during this 5year span there has been an average
inflation rate of 3.9%, producing a
cumulative price increase of
approximately 21.1% inflation since the
fee for the 10 Gb physical port was last
modified.12 In support of its claim of
reasonableness, the Exchange compares
its proposed rate increase from the rates
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20:21 Oct 03, 2023
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adopted five years ago of approximately
13% to the cumulative inflation rate of
21.1%.13
In further support of the proposal, the
Exchange states that the proposed fee is
reasonable, fair, and equitable, and not
unfairly discriminatory.14 The Exchange
believes that the proposed fee is
reasonable as it is still in line with, or
even lower than, amounts assessed by
other exchanges for similar
connections.15 The Exchange also states
its belief that the fee is not unfairly
discriminatory, because the fee would
be assessed uniformly across all market
participants that purchase the physical
ports.16 The Exchange states that the fee
is equitable because increasing the fee
for 10 Gb physical ports and charging a
higher fee as compared to the 1 Gb
physical port as the 1 Gb physical port
is 1/10 the size of the 10 Gb physical
port and does not offer access to many
of the products and services offered by
the Exchange.17 The Exchange also
states its belief the proposed fee is
reasonably and appropriately allocated
because, the Exchange states, market
participants that purchase 10 Gb
physical ports use the most bandwidth
and therefore consume the most
resources from the network.18
In further support of its proposed fee,
the Exchange states that Members and
non-Members will continue to choose
the method of connectivity based on
their specific needs and no brokerdealer is required to become a Member
of, or connect directly to, the
Exchange.19 The Exchange also states its
belief that substitutable products and
services are available to market
participants, including, among other
things, other equities 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 equities product, such as
within the Over-the-Counter markets.20
Additionally, the Exchange believes that
low barriers to entry mean that new
exchanges may rapidly enter the market
and offer additional substitute platforms
to further compete with the Exchange
13 See
id.
id.
15 See id.
16 See id.
17 See id.
18 See id.
19 See id.
20 See id. The Exchange states there are currently
16 registered equities exchanges that trade equities
(12 of which are not affiliated with Cboe), some of
which have similar or lower connectivity fees; and
based on publicly available information, no single
equities exchange has more than approximately
16% of the market share.
14 See
56 17
lotter on DSK11XQN23PROD with NOTICES1
CFR 200.30–3(a)(57) and (58).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A). A proposed rule change
may take effect upon filing with the Commission if
it is designated by the exchange as ‘‘establishing or
changing a due, fee, or other charge imposed by the
self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory
organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii).
4 See Securities Exchange Act Release No. 98393
(September 14, 2023), 88 FR 64933 (‘‘Notice’’).
5 15 U.S.C. 78s(b)(3)(C).
physical ports from $7,500 to $8,500 per
port. The Exchange currently assesses
the following physical connectivity fees
for Members 6 and non-Members on a
monthly basis: $2,500 per physical port
for a 1 Gb circuit and $7,500 per
physical port for a 10 Gb circuit.7
According to the Exchange, 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
EDGA Exchange, Inc., Cboe EDGX
Exchange, Inc. (options and equities
platforms), and Cboe C2 Exchange, Inc.
6 The term ‘‘Member’’ means any registered
broker or dealer that has been admitted to
membership in the Exchange. See Exchange Rule
1.5(n).
7 A physical port is utilized by a Member or nonMember to connect to the Exchange at the data
centers where the Exchange’s servers are located.
8 15 U.S.C. 78s(b)(3)(C).
9 15 U.S.C. 78s(b)(1).
10 See Notice, supra note 4, at 64934.
11 See id.
12 See id.
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]]>Agencies
[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68793-68798]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21940]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98596; File No. SR-CBOE-2023-038]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Suspension of
and Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change To Amend Its Fee Schedule Relating to
the Options Regulatory Fee
September 28, 2023.
I. Introduction
On August 1, 2023, Cboe Exchange, Inc. (``Cboe'' or ``Exchange'')
filed with the Securities and Exchange Commission (the ``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change
(file number SR-CBOE-2023-038) to increase the
[[Page 68794]]
amount of its Options Regulatory Fee (``ORF'').\3\ The proposed rule
change was immediately effective upon filing with the Commission
pursuant to Section 19(b)(3)(A) of the Act.\4\ The proposed rule change
was published for comment in the Federal Register on August 16,
2023.\5\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 98106 (August 10,
2023), 88 FR 55796 (August 16, 2023) (``Notice'').
\4\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take
effect upon filing with the Commission if it is designated by the
exchange as ``establishing or changing a due, fee, or other charge
imposed by the self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory organization.''
15 U.S.C. 78s(b)(3)(A)(ii).
\5\ See Notice, supra note 3.
---------------------------------------------------------------------------
Pursuant to Section 19(b)(3)(C) of the Act,\6\ the Commission is
hereby: (1) temporarily suspending file number SR-CBOE-2023-038; and
(2) instituting proceedings to determine whether to approve or
disapprove file number SR-CBOE-2023-038.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to increase the amount of its ORF from
$0.0017 to $0.0030 per contract.\7\ The Exchange assesses the ORF 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.\8\ The Exchange states that ``[r]evenue
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 option business. . . .'' \9\ Noting that it monitors
the amount of ORF revenue it collects ``to ensure that it, in
combination with its other regulatory fees and fines, does not exceed
the Exchange's total regulatory costs,'' the Exchange proposed to
increase the amount of its ORF ``based on the Exchange's estimated
projections for its regulatory costs, which have increased, coupled
with a projected decrease in the Exchange's other non-ORF regulatory
fees.'' \10\
---------------------------------------------------------------------------
\7\ See Notice, supra note 3, at 55796.
\8\ See id. The ORF is collected by OCC on behalf of the
Exchange from either the Clearing Trading Permit Holder (``CTPH'')
or the non-CTPH that ultimately clears the transaction. See id.
\9\ Id. at 55796.
\10\ Id. at 55797.
---------------------------------------------------------------------------
III. Suspension of the Proposed Rule Change
Pursuant to Section 19(b)(3)(C) of the Act,\11\ at any time within
60 days of the date of filing of an immediately effective proposed rule
change pursuant to Section 19(b)(1) of the Act,\12\ the Commission
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary
suspension of the proposed rule change is necessary or appropriate in
the public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Act to allow for additional analysis
of the proposed rule change's consistency with the Act and the rules
thereunder.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(3)(C).
\12\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchange's present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\13\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements.'' \14\
---------------------------------------------------------------------------
\13\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
\14\ Id.
---------------------------------------------------------------------------
Section 6 of the Act, including Sections 6(b)(4), (5), and (8),
require the rules of an exchange to: (1) provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \15\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \16\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\17\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(4).
\16\ 15 U.S.C. 78f(b)(5).
\17\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
In justifying its proposal, the Exchange stated that its proposal
``is reasonable because [the proposed increase] would help ensure that
revenue collected from the ORF, in combination with other regulatory
fees and fines, would help offset, but not exceed, the Exchange's total
regulatory costs.'' \18\ According to the Exchange, its ORF is designed
to ``generate revenues that would be less than or equal to 75% of the
Exchange's regulatory costs.'' \19\ The Exchange stated that the
proposed increase is reasonable based on ``recent options volumes,
coupled with the anticipated regulatory fees and anticipated reductions
in other regulatory fees.'' \20\ The Exchange further stated that
``although recent options volumes have increased, it has not increased
its ORF rate in four years'' and ``has reduced its ORF rates twice''
since 2019.\21\
---------------------------------------------------------------------------
\18\ Notice, supra note 3, at 55797.
\19\ Id.
\20\ Id. (stating that ``the proposed change is reasonable as it
would offset the anticipated increased regulatory costs, while still
not exceeding 75% of the Exchange's total regulatory costs.'').
\21\ Id. No exchange has increased its ORF rate since 2019.
---------------------------------------------------------------------------
The Exchange also asserted that the ORF is equitably allocated and
not unfairly discriminatory because higher fees are assessed ``to those
TPHs that require more Exchange regulatory services based on the amount
of customer options business they conduct.'' \22\ In addition, the
Exchange stated that ``[r]egulating 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.'' \23\
Further, the Exchange stated that it has ``broad regulatory
responsibilities with respect to its TPHs' activities, irrespective of
where their transactions take place'' and therefore the surveillance
programs for customer trading activity ``may require the Exchange to
look at activity across all markets.'' \24\ Consequently, 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.'' \25\
---------------------------------------------------------------------------
\22\ Notice, supra note 3, at 55797.
\23\ Id.
\24\ Id.
\25\ Id. at 55796.
---------------------------------------------------------------------------
In temporarily suspending the Exchange's proposed rule change, the
Commission intends to further consider whether the proposal to increase
the amount of the ORF is consistent with the statutory requirements
applicable to a national securities exchange under the Act. In
particular, the Commission will consider whether the proposed rule
[[Page 68795]]
change satisfies the standards under the Act and the rules thereunder
requiring, among other things, that an exchange's rules provide for the
equitable allocation of reasonable fees among members, issuers, and
other persons using its facilities; not permit unfair discrimination
between customers, issuers, brokers or dealers; and do not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\26\
---------------------------------------------------------------------------
\26\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------
Therefore, the Commission finds that it is necessary or appropriate
in the public interest, for the protection of investors, and otherwise
in furtherance of the purposes of the Act, to temporarily suspend the
proposed rule change.\27\
---------------------------------------------------------------------------
\27\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change
In addition to temporarily suspending the proposal, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\28\ and 19(b)(2)(B) of the Act \29\ to determine whether the
Exchange's proposed rule change should be approved or disapproved.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, the Commission seeks and encourages interested persons to
provide additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\29\ 15 U.S.C. 78s(b)(3)(c).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\30\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding, or if the
exchange consents to the longer period. See id.
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed fee
is consistent with Section 6(b)(4) of the Act, which requires that the
rules of a national securities exchange ``provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities'' \31\
(emphasis added);
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed fee
is consistent with Section 6(b)(5) of the Act, which requires, among
other things, that the rules of a national securities exchange not be
``designed to permit unfair discrimination between customers, issuers,
brokers, or dealers'' \32\ (emphasis added); and
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed fee
is consistent with Section 6(b)(8) of the Act, which requires that the
rules of a national securities exchange ``not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of [the Act].'' \33\
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
As noted above, the proposal purports to increase the amount of the
ORF in response to ``recent options volume'' \34\ and the Exchange's
estimated projections for its regulatory costs and anticipated
regulatory revenues in a manner that ``is designed to recover a
material portion of the regulatory costs to the Exchange of the
supervision and regulation of TPH customer options business. . . .''
\35\ However, those and other statements in support of its proposed
regulatory fee increase are general in nature and lack sufficient
detail and specificity.
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\34\ Notice, supra note 3, at 55797.
\35\ Notice, supra note 3, at 55796.
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For example, the Exchange does not discuss what ``recent options
volume'' it considered or how that volume has impacted its regulatory
expenses and regulatory revenues.\36\
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\36\ In recent years, several options exchanges have filed
proposed rule changes to reduce their respective ORF rates due to
unanticipated and sustained growth in customer options volume. See,
e.g., Securities Exchange Act Release Nos. 98054 (August 4, 2023) 88
FR 54362 (August 10, 2023) (SR-ISE-2023-14) (reducing ORF rate from
$0.0014 to $0.0013 because of continued options volume growth in
2023 and noting in particular that March 2023 options volume was
higher than any month in 2022); 98056 (August 4, 2023), 88 FR 54381
(August 10, 2023) (SR-GEMX-2023-09) (reducing ORF rate from $0.0013
to $0.0012); and 94065 (January 26, 2023), 87 FR 5548 (February 1,
2022) (SR-Phlx-2022-03) (reducing ORF rate from $0.0042 to $0.0034).
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Further, the Exchange does not elaborate on the ``material
portion'' of options regulatory expenses that it seeks to recover from
the ORF and why the threshold it selected (i.e., that ORF will ``not
exceed more than 75% of total annual regulatory costs'') correlates to
the degree of regulatory responsibility and expenses borne by the
Exchange as it relates to the regulation of customer options
transactions.\37\ For example, the Exchange has not provided any
quantifiable information to support its assertion that regulating
customer trading activity is ``much more labor-intensive'' and
therefore, more costly. The Exchange does not claim in its filing that
its regulation of customer activity consumes 75% of total regulatory
costs nor does it assert that customer activity requires a level of
effort that occupies 75% of the regulatory department's attention. The
Exchange does not sufficiently analyze how funding 75% of its total
regulatory costs (including direct and indirect expenses) from ORF,
e.g., constitutes an equitable allocation of reasonable fees among
members, and it does not provide sufficient detail to allow the
Commission and commenters to consider those issues.
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\37\ See Notice, supra note 3, at 55796.
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Further, the Exchange has not provided specific or detailed
information regarding the regulatory cost associated with monitoring
and surveilling exchange activity compared to off exchange activity. In
particular, the Exchange collects ORF on executions that do not occur
on the Exchange. With a market share under 20% based on matched volume,
that means that the Exchange seeks to collect ORF on the over 80% of
executions that happen elsewhere.\38\ However, the Exchange has not
provided information or analysis in its filing to support the
collection of ORF on away activity. The proposed ORF rate is the same
for on-exchange and off-exchange activity, so the proposal would result
in the Exchange funding a very significant portion of its total
regulatory costs from a fee charged on contracts that execute away from
the Exchange. The Exchange does not provide a sufficiently detailed
analysis or present specific facts to show the level of regulatory
effort and regulatory costs it expends on contracts that execute on
other exchanges. Without more information in the filing on the
Exchange's regulatory revenues, regulatory costs, and regulatory
activities to supervise and regulate members, specifically, e.g.,
customer versus non-customer activity and on-exchange versus off-
exchange activity, the proposal lacks specific information that can
speak to whether the proposed
[[Page 68796]]
ORF is reasonable, equitably allocated, and not unfairly
discriminatory, particularly given that the ORF is assessed only on
transactions that clear in the ``customer'' range and regardless of the
exchange on which the transaction occurs.
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\38\ Market share statistic as reported by the Exchange on
September 26, 2023, available at https://www.cboe.com/us/options/market_statistics/.
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \39\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\40\ and any failure of an SRO to provide this information may
result in the Commission not having a sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the
Act and the applicable rules and regulations.\41\
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\39\ 17 CFR 201.700(b)(3).
\40\ See id.
\41\ See id.
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As explained above, the Exchange's statements in support of the
proposed rule change are general in nature and lack detail and
specificity. The Commission cannot unquestionably rely on an exchange's
statements and representations.\42\ Instead, the Commission needs
sufficient information to support independent findings that a proposal
is consistent with the requirements of the Act.\43\ Here, such an
analysis includes, among other things, whether the proposed ORF is an
equitable allocation of reasonable dues, fees, and other changes among
the Exchange's members, as well as whether the proposed ORF is
equitable and not unfairly discriminatory.
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\42\ See Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 442, 447
(August 8, 2017).
\43\ See id.
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The Commission needs additional information from the Exchange to
demonstrate how the proposal meets those and other applicable
requirements of the Act, to assess whether the Exchange has established
a sufficient nexus between the proposed ORF and the Exchange's
regulation of customer trading activity both on and off exchange. While
the Commission broadly solicits comment from all interested parties on
the proposal, the Commission believes that the Exchange alone has
access to much of the specific detail necessary to fully address these
questions and concerns because these matters involve qualitative and
quantitative information about the Exchange's operations. Specifically,
among other things, the Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal
contained in the Notice.\44\ In particular, the Commission seeks
comment on the following aspects of the proposal and asks commenters to
submit data where appropriate to support their views:
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\44\ See Notice, supra note 3.
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1. Information on the Exchange's Projected Regulatory Costs and
Revenues. The Exchange states that its proposed ORF rate increase is
reasonable after considering recent options volume, coupled with its
projected increase in regulatory costs and anticipated reduction in
non-ORF regulatory fees. The Exchange notes that its regulatory costs
include direct regulatory expenses and certain indirect expenses for
work ``allocated in support of the regulatory function.'' \45\
According to the Exchange, indirect regulatory expenses (including,
among other things, human resources, legal, compliance, information
technology, facilities and accounting) are estimated to be
approximately 30% of the Exchange's total regulatory costs for 2023 and
direct regulatory expenses are estimated to be approximately 70% of the
Exchange's total regulatory costs for 2023. The Exchange did not
provide in the filing any further analysis regarding its projected
regulatory cost increases, its anticipated non-ORF regulatory revenue
decreases or in what way recent options volume was considered. Do
commenters believe the Exchange has provided adequate detail regarding
these metrics? If not, what additional information should be provided
to demonstrate how the proposal is consistent with the Act? How have
recent options volumes impacted the Exchange's regulatory expenses and
revenues? How should the Commission consider the Exchange's proposal in
light of recent proposals from other exchanges to reduce their ORF on
account of increasing customer options volume placing them at risk of
over-collecting ORF in excess of their regulatory expenses?
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\45\ See Notice, supra note 3, at 55796.
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2. Information on the Exchange's Imposition of ORF on Customer
Orders. The Exchange states that it is its ``practice that revenue
generated from ORF not exceed more that 75% of total annual regulatory
costs.'' \46\ Do commenters believe that the Exchange has sufficiently
analyzed and justified its proposal to fund 75% of its total regulatory
expenses from a fee imposed only on options transactions clearing in
the customer-range, where those expenses include the regulation of
transactions that clear in the non-customer-range (e.g., broker-dealer
and market maker trades)? In addition, explaining that the proposed ORF
would be charged to ``all TPHs on all their transactions that clear in
the customer-range at the OCC,'' the Exchange states that such
methodology ``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.'' \47\ The Exchange further
asserts that ``[r]egulating 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.'' \48\ According to the
Exchange, ``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 transaction) of its regulatory
program.'' \49\ Do commenters believe that the Exchange has provided
sufficiently detailed quantitative and qualitative evidence in support
of this aspect of its proposal? Specifically, examples of information
that would be helpful to demonstrate how the assessment of ORF only on
orders that clear in the customer-range correlates to the level of
effort and costs the Exchange expends to regulate customer options
transactions include: (a) the percentage of volume that clears in the
customer-range both on and off the Exchange compared to the percentage
of volume that clears in a range other than customer both on and off
Exchange; (b) the percentage of the Exchange's regulatory budget
attributable to the regulation of orders that clear in the customer-
range compared to the percentage of the Exchange's regulatory budget
attributable to orders that clear in a range other than customer; (c)
the percentage of the Exchange's regulatory level of effort
attributable to the regulation of orders that clear in the customer-
range compared to the percentage of the Exchange's regulatory level
effort attributable to orders that clear in a range other than
customer; and (d) the proportion of the Exchange's revenues, as
reported in the most recent
[[Page 68797]]
annual financials it submitted on Form 1, represented by ORF revenue.
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\46\ See id.
\47\ See id. at 55797.
\48\ See id.
\49\ See id.
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3. Information on the Exchange's Assessment of ORF on Away-Market
Activity. The Exchange states that ``it has broad regulatory
responsibilities with respect to TPHs' activities, irrespective of
where their transactions take place.'' \50\ The Exchange therefore
believes that it is appropriate to impose the ORF on ``all customer-
range transactions cleared by a TPH, even if the transactions do not
take place on the Exchange.'' \51\ Do commenters believe that the
Exchange has provided sufficiently detailed quantitative and
qualitative evidence in support of how the assessment of ORF on away-
market transactions correlates to the effort it expends on regulating
away-market transactions compared to the level of effort the Exchange
invests in regulating transactions on Exchange? Specifically, examples
of information that would be helpful to assess the application of the
ORF to executions that do not occur on the Exchange include: (a) the
percentage of the Exchange's overall regulatory budget attributable to
the regulation of away-market transactions compared to the percentage
of the Exchange's overall regulatory budget allocated to regulating on-
Exchange transactions; (b) the percentage of the Exchange's regulatory
level of effort attributable to the regulation of away-market
transactions compared to the percentage of the Exchange's regulatory
level of effort attributable to the regulation of orders that execute
on the Exchange; (c) the percentage of ORF revenue that is derived from
away-market transactions compared to the percentage of ORF revenue that
is derived from executions on the Exchange; and (d) more detail on the
regulatory activities the exchange performs for trades that do not
occur on the Exchange.
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\50\ See id.
\51\ See id. at 55796.
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4. Information on the Exchange's Regulatory Program Concerning
Clearing Brokers. The Exchange states that ORF is collected on
``customer'' range options transactions cleared by a CTPH regardless of
the exchange on which the transaction occurs, including from a non-
CTPH.\52\ Do commenters believe that the Exchange has provided
sufficiently detailed quantitative and qualitative evidence in support
of this aspect of its proposal? Specifically, examples of information
that would be helpful to provide context for the collection of ORF from
member and non-member clearing brokers and determine whether a
sufficient nexus exists between the ORF and the Exchange's regulation
of CTPH clearing activity, include: (a) the percentage of the
Exchange's regulatory expenses and level of regulatory activity that
pertain to clearance and settlement activity and the percentage this
accounts for with respect to the Exchange's overall regulatory costs
and regulatory activity, and if that differs depending on whether the
CTPH is an Exchange member or not and whether the contract executes on
the Exchange or not; (b) the number of CTPHs compared to the number of
non-CTPHs from which ORF is collected on behalf of the Exchange; and
(c) the percentage of ORF revenues collected from member CTPHs compared
to the percentage of ORF revenue collected from non-members.
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\52\ See id. at 55796.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposed fees are consistent with the Act, and
specifically, with the requirements that exchange fees be reasonable,
equitably allocated, and not unfairly discriminatory.\53\
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\53\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by October 25, 2023.
Rebuttal comments should be submitted by November 8, 2023. Although
there do not appear to be any issues relevant to approval or
disapproval which would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\54\
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\54\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2023-038 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CBOE-2023-038. 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-CBOE-2023-038 and should be
submitted on or before October 25, 2023. Rebuttal comments should be
submitted by November 8, 2023.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\55\ that file number SR-CBOE-2023-038, be and hereby is,
temporarily suspended. In addition, the Commission is instituting
proceedings to determine whether the
[[Page 68798]]
proposed rule change should be approved or disapproved.
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\55\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(57) and (58).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21940 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
