Self-Regulatory Organizations; Cboe BZX 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, 68822-68827 [2023-21962]

Download as PDF 68822 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices values pilot does not raise any unique regulatory concerns. In particular, although p.m. settlements may raise questions with the Commission, the Exchange believes that, based on the Exchange’s experience in trading FLEX Options to date and over the pilot period, market impact and investor protection concerns will not be raised by this rule change. The Exchange also believes that the proposed rule change would continue to provide Trading Permit Holders and investors with additional opportunities to trade customized options in an exchange environment (which offers the added benefits of transparency, price discovery, liquidity, and financial stability as compared to the over-thecounter market) and subject to exchange-based rules, and investors would benefit as a result. B. Self-Regulatory Organization’s Statement on Burden on Competition lotter on DSK11XQN23PROD with NOTICES1 Cboe Options does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes there is sufficient investor interest and demand in the pilot program to warrant its extension. The Exchange believes that, for the period that the pilot has been in operation, the program has provided investors with additional means of managing their risk exposures and carrying out their investment objectives. Furthermore, the Exchange believes that it has not experienced any adverse market effects with respect to the pilot program, including any adverse market volatility effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near Non-Flex expirations and use a p.m. settlement. Cboe Options believes that the restriction actually places the Exchange at a competitive disadvantage to its OTC counterparts in the market for customized options, and unnecessarily limits market participants’ ability to trade in an exchange environment that offers the added benefits of transparency, price discovery, liquidity, and financial stability. Therefore, the Exchange does not believe that the proposed rule change will impose any burden on competition. 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. VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing 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 for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 23 and Rule 19b– 4(f)(6) thereunder.24 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CBOE–2023–057 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–2023–057. 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/ 23 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, 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. 24 17 PO 00000 Frm 00264 Fmt 4703 Sfmt 4703 rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. 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–2023–057, and should be submitted on or before October 25, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–21958 Filed 10–3–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98597; File No. SR– CboeBZX–2023–071] Self-Regulatory Organizations; Cboe BZX 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 September 12, 2023, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) 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 25 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\04OCN1.SGM 04OCN1 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices (file number SR–CboeBZX–2023–071) to increase the 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 September 22, 2023.5 Pursuant to Section 19(b)(3)(C) of the Act,6 the Commission is hereby: (1) temporarily suspending file number SR– CboeBZX–2023–071; and (2) instituting proceedings to determine whether to approve or disapprove file number SR– CboeBZX–2023–071. II. Description of the Proposed Rule Change The Exchange proposes to increase the amount of its ORF from $0.0001 to $0.0003 per contract.7 The Exchange assesses the ORF to each Member for options transactions cleared by the Member 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 Member 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.’’ 10 lotter on DSK11XQN23PROD with NOTICES1 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 3 See Securities Exchange Act Release No. 98420 (September 18, 2023), 88 FR 65412 (September 22, 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 65412. 8 See id. The ORF is collected by OCC on behalf of the Exchange from either the Clearing Member or the non-Member that ultimately clears the transaction. See id. 9 Id. 10 Id. at 65413. 11 15 U.S.C. 78s(b)(3)(C). VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 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 12 15 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). PO 00000 Frm 00265 Fmt 4703 Sfmt 4703 68823 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 ‘‘the Exchange’s estimated projections for its regulatory costs, which have increased.’’ 20 The Exchange further stated that ‘‘although recent options volumes have increased, it has not increased its ORF rate since it was adopted in 2015’’ and ‘‘has been steadily decreasing the rate over the last several years.’’ 21 The Exchange also asserted that the ORF is equitably allocated and not unfairly discriminatory because higher fees are assessed ‘‘to those Members 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 Members’ 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 Member, 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 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 18 Notice, supra note 3, at 65413. 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. 22 Notice, supra note 3, at 65414. 23 Id. 24 Id. 25 Id. at 65412. E:\FR\FM\04OCN1.SGM 04OCN1 68824 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 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 lotter on DSK11XQN23PROD with NOTICES1 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 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 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)(2)(B). 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. VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 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, in response to ‘‘the Exchange’s estimated projections for its regulatory costs, which have increased,’’ the proposal purports to increase the amount of the ORF in a manner that is ‘‘designed to recover a material portion of the regulatory costs to the Exchange of the supervision and regulation of Member customer options business . . . .’’ 34 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 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.35 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 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 65412–13. 35 See Notice, supra note 3, at 65413. 32 15 PO 00000 Frm 00266 Fmt 4703 Sfmt 4703 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 6% based on matched volume, that means that the Exchange seeks to collect ORF on the over 94% of executions that happen elsewhere.36 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 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. Further, the Exchange states that recent volume has increased, but does not discuss the specifics or whether it considered how that volume has impacted its regulatory expenses and regulatory revenues.37 36 Market share statistic as reported by the Exchange on September 26, 2023, available at https://www.cboe.com/us/options/market_ statistics/. 37 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). E:\FR\FM\04OCN1.SGM 04OCN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 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.’’ 38 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,39 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.40 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.41 Instead, the Commission needs sufficient information to support independent findings that a proposal is consistent with the requirements of the Act.42 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 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 38 17 CFR 201.700(b)(3). id. 40 See id. 41 See Susquehanna Int’l Grp., LLP v. SEC, 866 F.3d 442, 447 (August 8, 2017). 42 See id. 39 See VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 the Notice.43 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 its projected increase in regulatory costs. The Exchange notes that its regulatory costs include direct regulatory expenses and certain indirect expenses for work ‘‘allocated in support of the regulatory function.’’ 44 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 50.5% of the Exchange’s total regulatory costs for 2023 and direct regulatory expenses are estimated to be approximately 49.5% 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. 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.’’ 45 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 noncustomer-range (e.g., broker-dealer and market maker trades)? In addition, explaining that the proposed ORF would be charged to ‘‘all Members 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 Members that require more Exchange regulatory services based on the amount of customer options business they conduct.’’ 46 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.’’ 47 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., Member proprietary transaction) of its regulatory program.’’ 48 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 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 its Members’ activities, irrespective of where their transactions take place.’’ 49 The Exchange therefore 46 See 43 See Notice, supra note 3. 44 See Notice, supra note 3, at 65413. 45 See id. PO 00000 Frm 00267 Fmt 4703 Sfmt 4703 68825 id. at 65413–14. id. at 65414. 48 See id. 49 See id. 47 See E:\FR\FM\04OCN1.SGM 04OCN1 lotter on DSK11XQN23PROD with NOTICES1 68826 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices believes that it is appropriate to impose the ORF on ‘‘all customer-range transactions cleared by a Member, even if the transactions do not take place on the Exchange.’’ 50 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 Clearing Member regardless of the exchange on which the transaction occurs, including from a non-Member.51 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 Clearing Member 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 50 See 51 See id. at 65412. id. at 65412. VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 regulatory costs and regulatory activity, and if that differs depending on whether the Clearing Member is an Exchange member or not and whether the contract executes on the Exchange or not; (b) the number of Clearing Members compared to the number of non-Members from which ORF is collected on behalf of the Exchange; and (c) the percentage of ORF revenues collected from Clearing Members compared to the percentage of ORF revenue collected from nonMembers. 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.52 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.53 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 52 See 15 U.S.C. 78f(b)(4), (5), and (8). 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). 53 15 PO 00000 Frm 00268 Fmt 4703 Sfmt 4703 • Send an email to rule-comments@ sec.gov. Please include file number SR– CboeBZX–2023–071 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–CboeBZX–2023–071. 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–CboeBZX–2023–071 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,54 that file number SR–CboeBZX–2023–071, be and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. 54 15 E:\FR\FM\04OCN1.SGM U.S.C. 78s(b)(3)(C). 04OCN1 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.55 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–21962 Filed 10–3–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98657; File No. SR–MIAX– 2023–30] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change To Amend the Fee Schedule To Modify Certain Connectivity and Port Fees September 29, 2023. I. Introduction On August 8, 2023, Miami International Securities Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’) 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 No. SR–MIAX–2023–30) to amend certain connectivity and port fees. 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 August 25, 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 As described in more detail in the Notice, the Exchange proposes to: (1) increase fees for a 10 gigabit (‘‘Gb’’) 55 17 CFR 200.30–3(a)(57) and (58). 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. 98173 (August 21, 2023), 88 FR 58378 (SR–MIAX–2023– 30) (‘‘Notice’’). Comment on the proposed rule change can be found at: https://www.sec.gov/ comments/sr-miax-2023-30/srmiax202330.htm. 5 15 U.S.C. 78s(b)(3)(C). lotter on DSK11XQN23PROD with NOTICES1 1 15 VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 ultra-low latency (‘‘ULL’’) fiber connection for Members 6 and nonMembers from $10,000 to $13,500 per month; 7 (2) remove provisions in the Exchange’s Fee Schedule that provide for a shared 10 Gb ULL network with the Exchange’s affiliate MIAX Pearl Options; 8 and (3) increase fees for Limited Service MIAX Express Interface 9 (‘‘MEI’’) Ports available to Market Makers 10 through implementing a tiered-pricing structure.11 With respect to Limited Service MEI Ports, the Exchange will continue to provide two Limited Service MEI Ports for each 6 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights associated with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 7 See Notice, supra note 4, at 58383. 8 On January 23, 2023, the Exchange bifurcated the Exchange and MIAX Pearl Options 10Gb ULL network and stated that this bifurcation was due to ever-increasing capacity constraints and anticipated access needs for Members and market participants. See Securities Exchange Act Release Nos. 96545 (December 20, 2022), 87 FR 79393 (December 27, 2022) (SR–MIAX–2022–48); and 96553 (December 20, 2022), 87 FR 79379 (December 27, 2022) (SR– PEARL–2022–60). The instant filing would amend provisions in the Fee Schedule to reflect the bifurcation of the 10Gb ULL network and specify that only the 1Gb network provides access to both the Exchange and MIAX Pearl Options. See Notice, supra note 4, at 58383. 9 The MIAX Express Interface (‘‘MEI’’) is a connection to MIAX systems that enables Market Makers to submit simple and complex electronic quotes to MIAX. See Fee Schedule, note 26. 10 The term ‘‘Market Makers’’ refers to Lead Market Makers (‘‘LMMs’’), Primary Lead Market Makers (‘‘PLMMs’’), and Registered Market Makers (‘‘RMMs’’) collectively. See Exchange Rule 100. For purposes of Limit Service MEI Ports, Market Makers also include firms that engage in other types of liquidity activity, such as seeking to remove resting liquidity from the Exchange’s Book. The Exchange states that the Limited Service MEI Ports provide Market Makers with the ability to send eQuotes and quote purge messages only, but not Market Maker Quotes, to the MIAX System, in addition to being capable of receiving administrative information. See Notice, supra note 4, at 58383, n.61. 11 See Notice, supra note 4, at 58383. The Exchange initially filed the proposed fee change on December 30, 2022, with an effective date of January 1, 2023. See Securities Exchange Act Release No. 96629 (January 10, 2023), 88 FR 2729 (January 17, 2023) (SR–MIAX–2022–50). That filing was withdrawn by the Exchange and the Exchange filed a new proposed fee change with additional justification (SR–MIAX–2023–08) on February 23, 2023. See Securities Exchange Act Release No. 97081 (March 8, 2023), 88 FR 15782 (March 14, 2023). The Exchange subsequently withdrew that filing and replaced it with SR–MIAX–2023–18 on April 20, 2023. See Securities Exchange Act Release No. 97419 (May 2, 2023), 88 FR 29777 (May 8, 2023). The Exchange subsequently withdrew that filing and replaced it with SR–MIAX–2023–25 on June 16, 2023. See Securities Exchange Act Release No. 97814 (June 27, 2023), 88 FR 42844 (July 3, 2023). The Exchange subsequently withdrew that filing and replaced it with the instant filing to provide additional information and a revised justification for the proposal, which is discussed herein. See Notice, supra note 4, at 58379. PO 00000 Frm 00269 Fmt 4703 Sfmt 4703 68827 matching engine 12 to which a Market Maker connects free of charge.13 Prior to the proposed fee change, Market Makers were assessed a $100 monthly fee for each additional Limited Service MEI Port for each matching engine above the first two Limited Service MEI Ports that were included for free.14 Now, the Exchange proposes to establish a tieredpricing structure for the Limited Service MEI Ports pursuant to which: (i) the third and fourth Limited Service MEI Ports for each matching engine will increase to $150 a month per port; (ii) the fifth and sixth Limited Service MEI Ports for each matching engine will increase to $200 a month per port; and (iii) the seventh or more Limited Service MEI Ports will increase to $250 a month per port.15 III. Suspension of the Proposed Rule Change Pursuant to Section 19(b)(3)(C) of the Act,16 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,17 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 fees overall are reasonable because they promote parity among exchange pricing for access, which promotes competition, while allowing the Exchange to recover its costs to provide dedicated access via 10Gb ULL connectivity and Limited Service MEI 12 A ‘‘matching engine’’ is a part of the MIAX electronic system that processes options quotes and trades on a symbol-by-symbol basis. Some matching engines will process option classes with multiple root symbols, and other matching engines will be dedicated to one single option root symbol (for example, options on SPY will be processed by one single matching engine that is dedicated only to SPY). A particular root symbol may only be assigned to a single designated matching engine. A particular root symbol may not be assigned to multiple matching engines. See Notice, supra note 4, at 58383, n.62 (citing Fee Schedule, Section 5)d)ii), note 29). 13 See Notice, supra note 4, at 58383. 14 See id. 15 See id. 16 15 U.S.C. 78s(b)(3)(C). 17 15 U.S.C. 78s(b)(1). E:\FR\FM\04OCN1.SGM 04OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68822-68827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21962]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98597; File No. SR-CboeBZX-2023-071]


Self-Regulatory Organizations; Cboe BZX 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 September 12, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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

[[Page 68823]]

(file number SR-CboeBZX-2023-071) to increase the 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 September 22, 2023.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 98420 (September 18, 
2023), 88 FR 65412 (September 22, 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.
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    Pursuant to Section 19(b)(3)(C) of the Act,\6\ the Commission is 
hereby: (1) temporarily suspending file number SR-CboeBZX-2023-071; and 
(2) instituting proceedings to determine whether to approve or 
disapprove file number SR-CboeBZX-2023-071.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    The Exchange proposes to increase the amount of its ORF from 
$0.0001 to $0.0003 per contract.\7\ The Exchange assesses the ORF to 
each Member for options transactions cleared by the Member 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 Member 
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.'' \10\
---------------------------------------------------------------------------

    \7\ See Notice, supra note 3, at 65412.
    \8\ See id. The ORF is collected by OCC on behalf of the 
Exchange from either the Clearing Member or the non-Member that 
ultimately clears the transaction. See id.
    \9\ Id.
    \10\ Id. at 65413.
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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.
---------------------------------------------------------------------------

    \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 ``the Exchange's estimated 
projections for its regulatory costs, which have increased.'' \20\ The 
Exchange further stated that ``although recent options volumes have 
increased, it has not increased its ORF rate since it was adopted in 
2015'' and ``has been steadily decreasing the rate over the last 
several years.'' \21\
---------------------------------------------------------------------------

    \18\ Notice, supra note 3, at 65413.
    \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 
Members 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 Members' 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 
Member, even if the transactions do not take place on the Exchange.'' 
\25\
---------------------------------------------------------------------------

    \22\ Notice, supra note 3, at 65414.
    \23\ Id.
    \24\ Id.
    \25\ Id. at 65412.
---------------------------------------------------------------------------

    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 
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

[[Page 68824]]

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)(2)(B).
---------------------------------------------------------------------------

    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, in response to ``the Exchange's estimated 
projections for its regulatory costs, which have increased,'' the 
proposal purports to increase the amount of the ORF in a manner that is 
``designed to recover a material portion of the regulatory costs to the 
Exchange of the supervision and regulation of Member customer options 
business . . . .'' \34\ However, those and other statements in support 
of its proposed regulatory fee increase are general in nature and lack 
sufficient detail and specificity.
---------------------------------------------------------------------------

    \34\ Notice, supra note 3, at 65412-13.
---------------------------------------------------------------------------

    For example, 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.\35\ 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.
---------------------------------------------------------------------------

    \35\ See Notice, supra note 3, at 65413.
---------------------------------------------------------------------------

    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 6% based on matched volume, 
that means that the Exchange seeks to collect ORF on the over 94% of 
executions that happen elsewhere.\36\ 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 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.
---------------------------------------------------------------------------

    \36\ Market share statistic as reported by the Exchange on 
September 26, 2023, available at https://www.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    Further, the Exchange states that recent volume has increased, but 
does not discuss the specifics or whether it considered how that volume 
has impacted its regulatory expenses and regulatory revenues.\37\
---------------------------------------------------------------------------

    \37\ 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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[[Page 68825]]

    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.'' \38\ 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,\39\ 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.\40\
---------------------------------------------------------------------------

    \38\ 17 CFR 201.700(b)(3).
    \39\ See id.
    \40\ See id.
---------------------------------------------------------------------------

    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.\41\ Instead, the Commission needs 
sufficient information to support independent findings that a proposal 
is consistent with the requirements of the Act.\42\ 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.
---------------------------------------------------------------------------

    \41\ See Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 442, 447 
(August 8, 2017).
    \42\ See id.
---------------------------------------------------------------------------

    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.\43\ 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:
---------------------------------------------------------------------------

    \43\ See Notice, supra note 3.
---------------------------------------------------------------------------

    1. Information on the Exchange's Projected Regulatory Costs and 
Revenues. The Exchange states that its proposed ORF rate increase is 
reasonable after considering its projected increase in regulatory 
costs. The Exchange notes that its regulatory costs include direct 
regulatory expenses and certain indirect expenses for work ``allocated 
in support of the regulatory function.'' \44\ 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 50.5% of the 
Exchange's total regulatory costs for 2023 and direct regulatory 
expenses are estimated to be approximately 49.5% 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. 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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    \44\ See Notice, supra note 3, at 65413.
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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.'' \45\ 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 Members 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 
Members that require more Exchange regulatory services based on the 
amount of customer options business they conduct.'' \46\ 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.'' \47\ 
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., Member proprietary transaction) of its 
regulatory program.'' \48\ 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 annual financials it submitted on Form 1, 
represented by ORF revenue.
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    \45\ See id.
    \46\ See id. at 65413-14.
    \47\ See id. at 65414.
    \48\ 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 its Members' activities, irrespective 
of where their transactions take place.'' \49\ The Exchange therefore

[[Page 68826]]

believes that it is appropriate to impose the ORF on ``all customer-
range transactions cleared by a Member, even if the transactions do not 
take place on the Exchange.'' \50\ 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.
---------------------------------------------------------------------------

    \49\ See id.
    \50\ See id. at 65412.
---------------------------------------------------------------------------

    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 Clearing Member 
regardless of the exchange on which the transaction occurs, including 
from a non-Member.\51\ 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 Clearing Member 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 Clearing Member is an Exchange member or not 
and whether the contract executes on the Exchange or not; (b) the 
number of Clearing Members compared to the number of non-Members from 
which ORF is collected on behalf of the Exchange; and (c) the 
percentage of ORF revenues collected from Clearing Members compared to 
the percentage of ORF revenue collected from non-Members.
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    \51\ See id. at 65412.
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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.\52\
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    \52\ 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.\53\
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    \53\ 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-CboeBZX-2023-071 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-CboeBZX-2023-071. 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-CboeBZX-2023-071 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,\54\ that file number SR-CboeBZX-2023-071, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \54\ 15 U.S.C. 78s(b)(3)(C).


[[Page 68827]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(57) and (58).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21962 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P

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