Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees, 89755-89759 [2023-28606]
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Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices
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provisions of 5 U.S.C. 552, will be
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For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.24
Christina Z. Milnor,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99220; File No. SR–C2–
2023–025]
Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Fees
Schedule Related to Physical Port
Fees
December 21, 2023.
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Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
12, 2023, Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2 Options’’) proposes
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2023–28706 Filed 12–27–23; 8:45 am]
24 17
to amend its Fees Schedule. The text of
the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/ctwo/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
1. Purpose
The Exchange proposes to amend its
fee schedule relating to physical
connectivity fees.3
By way of background, a physical port
is utilized by a Member or non-Member
to connect to the Exchange at the data
centers where the Exchange’s servers are
located. The Exchange currently
assesses the following physical
connectivity fees for Trading Permit
Holders (‘‘TPHs’’) and non-TPHs on a
monthly basis: $2,500 per physical port
for a 1 gigabit (‘‘Gbps’’) circuit and
$7,500 per physical port for a 10 Gbps
circuit. The Exchange proposes to
increase the monthly fee for 10 Gbps
physical ports from $7,500 to $8,500 per
port. The Exchange notes the proposed
fee change better enables it to continue
to maintain and improve its market
technology and services and also notes
that the proposed fee amount, even as
3 The Exchange initially filed the proposed fee
changes on July 3, 2023 (SR–C2–2023–014). On
September 1, 2023, the Exchange withdrew that
filing and submitted SR–C2–2023–020. On
September 29, 2023, the Securities and Exchange
Commission issued a Suspension of and Order
Instituting Proceedings to Determine whether to
Approve or Disapprove a Proposed Rule Change to
Amend its Fees Schedule Related to Physical Port
Fees (the ‘‘OIP’’). On September 29, 2023, the
Exchange filed the proposed fee change (SR–C2–
2023–021). On October 13, 2023, the Exchange
withdrew that filing and submitted SR–C2–2023–
022. On December 12, 2023, the Exchange withdrew
that filing and submitted this filing.
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89755
amended, continues to be in line with,
or even lower than, amounts assessed by
other exchanges for similar
connections.4 The physical ports may
also be used to access the Systems for
the following affiliate exchanges and
only one monthly fee currently (and
will continue) to apply per port: Cboe
BZX Exchange, Inc. (options and
equities platforms), Cboe EDGX
Exchange, Inc. (options and equities
platforms), Cboe BYX Exchange, Inc.,
and Cboe EDGA Exchange, Inc.
(‘‘Affiliate Exchanges’’).5
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
section 6(b) of the Act.6 Specifically, the
Exchange believes the proposed rule
change is consistent with the section
6(b)(5) 7 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the section 6(b)(5) 8 requirement that the
rules of an exchange not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange also believes the
proposed rule change is consistent with
section 6(b)(4) 9 of the Act, which
requires that Exchange rules provide for
the equitable allocation of reasonable
dues, fees, and other charges among its
4 See e.g., The Nasdaq Stock Market LLC
(‘‘Nasdaq’’), General 8, Connectivity to the
Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gbps
Ultra fiber connection to the respective exchange,
which is analogous to the Exchange’s 10Gbps
physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE
Chicago Inc., NYSE National, Inc. Connectivity Fee
Schedule, which provides that 10 Gbps LX LCN
Circuits (which are analogous to the Exchange’s 10
Gbps physical port) are assessed $22,000 per
month, per port.
5 The Affiliate Exchanges are also submitting
contemporaneous identical rule filings.
6 15 U.S.C. 78f(b).
7 15 U.S.C. 78f(b)(5).
8 Id.
9 15 U.S.C. 78f(b)(4).
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TPHs and other persons using its
facilities.
The Exchange believes the proposed
fee change is reasonable as it reflects a
moderate increase in physical
connectivity fees for 10 Gbps physical
ports. Further, the current 10 Gbps
physical port fee has remained
unchanged since June 2018.10 Since its
last increase 5 years ago however, there
has been notable inflation. Particularly,
the dollar has had an average inflation
rate of 3.9% per year between 2018 and
today, producing a cumulative price
increase of approximately 21.1%
inflation since the fee for the 10 Gbps
physical port was last modified.11
Moreover, the Exchange historically
does not increase fees every year,
notwithstanding inflation. Accordingly,
the Exchange believes the proposed fee
is reasonable as it represents only an
approximate 13% increase from the
rates adopted five years ago,
notwithstanding the cumulative rate of
21.1%. The Exchange is also unaware of
any standard that suggests any fee
proposal that exceeds a certain yearly or
cumulative inflation rate is
unreasonable.
The Exchange also believes the
proposed fee is reasonable as it is still
in line with, or even lower than,
amounts assessed by other exchanges
for similar connections.12 Indeed, the
Exchange believes assessing fees that are
a lower rate than fees assessed by other
exchanges for analogous connectivity
(which were similarly adopted via the
rule filing process and filed with the
Commission) is reasonable. As noted
above, the proposed fee is also the same
as is concurrently being proposed for its
Affiliate Exchanges. Further, TPHs are
able to utilize a single port to connect
to any of the Affiliate Exchanges with
no additional fee assessed for that same
physical port. Particularly, the Exchange
believes the proposed monthly per port
fee is reasonable, equitable and not
unfairly discriminatory as it is assessed
only once, even if it connects with
another affiliate exchange since only
10 See Securities and Exchange Release No. 83455
(June 15, 2018), 83 FR 28892 (June 21, 2018) (SR–
C2–2018–014).
11 See https://www.officialdata.org/us/inflation/
2010?amount=1.
12 See e.g., The Nasdaq Stock Market LLC
(‘‘Nasdaq’’), General 8, Connectivity to the
Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gbps
Ultra fiber connection to the respective exchange,
which is analogous to the Exchange’s 10Gbps
physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE
Chicago Inc., NYSE National, Inc. Connectivity Fee
Schedule, which provides that 10 Gbps LX LCN
Circuits (which are analogous to the Exchange’s 10
Gbps physical port) are assessed $22,000 per
month, per port.
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one port is being used and the Exchange
does not wish to charge multiple fees for
the same port. Indeed, the Exchange
notes that several ports are in fact
purchased and utilized across one or
more of the Exchange’s affiliated
Exchanges (and charged only once).
The Exchange also believes that the
proposed fee change is not unfairly
discriminatory because it would be
assessed uniformly across all market
participants that purchase the physical
ports. The Exchange believes increasing
the fee for 10 Gbps physical ports and
charging a higher fee as compared to the
1 Gbps physical port is equitable as the
1 Gbps physical port is 1⁄10th the size of
the 10 Gbps physical port and therefore
does not offer access to many of the
products and services offered by the
Exchange (e.g., ability to receive certain
market data products). Thus, the value
of the 1 Gbps alternative is lower than
the value of the 10 Gbps alternative,
when measured based on the type of
Exchange access it offers. Moreover,
market participants that purchase 10
Gbps physical ports utilize the most
bandwidth and therefore consume the
most resources from the network. As
such, the Exchange believes the
proposed fee change for 10 Gbps
physical ports is reasonably and
appropriately allocated.
The Exchange also notes TPHs and
non-TPHs will continue to choose the
method of connectivity based on their
specific needs and no broker-dealer is
required to become a TPH of, let alone
connect directly to, the Exchange. There
is also no regulatory requirement that
any market participant connect to any
one particular exchange. Moreover,
direct connectivity is not a requirement
to participate on the Exchange. The
Exchange also believes substitutable
products and services are available to
market participants, including, among
other things, other options exchanges
that a market participant may connect to
in lieu of the Exchange, indirect
connectivity to the Exchange via a thirdparty reseller of connectivity, and/or
trading of any options product, such as
within the Over-the-Counter (OTC)
markets which do not require
connectivity to the Exchange. Indeed,
there are currently 17 registered options
exchanges that trade options (13 of
which are not affiliated with Cboe),
some of which have similar or lower
connectivity fees.13 Based on publicly
available information, no single options
exchange has more than approximately
20% of the market share.14 Further, low
13 Id.
14 See Cboe Global Markets U.S. Options Market
Volume Summary (October 13, 2023), available at
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barriers to entry mean that new
exchanges may rapidly enter the market
and offer additional substitute platforms
to further compete with the Exchange
and the products it offers. For example,
there are 4 exchanges that have been
added in the U.S. options markets in the
last 5 years (i.e., Nasdaq MRX, LLC,
MIAX Pearl, LLC, MIAX Emerald LLC,
and most recently, MEMX LLC).
As noted above, there is no regulatory
requirement that any market participant
connect to any one options exchange,
nor that any market participant connect
at a particular connection speed or act
in a particular capacity on the
Exchange, or trade any particular
product offered on an exchange.
Moreover, membership is not a
requirement to participate on the
Exchange. Indeed, the Exchange is
unaware of anyone options exchange
whose membership includes every
registered broker-dealer. By way of
example, while the Exchange has 52
TPHs, Cboe BZX has 61 members that
trade options, and Cboe EDGX has 51
members that trade options. There is
also no firm that is a Member of C2
Options only. Further, based on
publicly available information regarding
a sample of the Exchange’s competitors,
NYSE American Options has 71
members,15 and NYSE Arca Options has
69 members,16 MIAX Options has 46
members 17 and MIAX Pearl Options has
40 members.18
A market participant may also submit
orders to the Exchange via a Member
broker or a third-party reseller of
connectivity. The Exchange notes that
third-party non-TPHs also resell
exchange connectivity. This indirect
connectivity is another viable
alternative for market participants to
trade on the Exchange without
connecting directly to the Exchange
(and thus not pay the Exchange
connectivity fees), which alternative is
already being used by non-TPHs and
further constrains the price that the
Exchange is able to charge for
connectivity to its Exchange.19 The
https://markets.cboe.com/us/options/market_
statistics/.
15 See https://www.nyse.com/markets/americanoptions/membership#directory.
16 See https://www.nyse.com/markets/arcaoptions/membership#directory.
17 See https://www.miaxglobal.com/sites/default/
files/page-files/MIAX_Options_Exchange_
Members_April_2023_04282023.pdf.
18 See https://www.miaxglobal.com/sites/default/
files/page-files/MIAX_Pearl_Exchange_Members_
01172023_0.pdf.
19 Third-party resellers of connectivity play an
important role in the capital markets infrastructure
ecosystem. For example, third-party resellers can
help unify access for customers who want exposure
to multiple financial markets that are
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Exchange notes that it could, but
chooses not to, preclude market
participants from reselling its
connectivity. Unlike other exchanges,
the Exchange also chooses not to adopt
fees that would be assessed to thirdparty resellers on a per customer basis
(i.e., fee based on number of TPHs that
connect to the Exchange indirectly via
the third-party).20 Particularly, these
third-party resellers may purchase the
Exchange’s physical ports and resell
access to such ports either alone or as
part of a package of services. The
Exchange notes that multiple TPHs are
able to share a single physical port (and
corresponding bandwidth) with other
non-affiliated TPHs if purchased
through a third-party reseller.21 This
allows resellers to mutualize the costs of
the ports for market participants and
provide such ports at a price that may
be lower than the Exchange charges due
to this mutualized connectivity. These
third-party sellers may also provide an
additional value to market participants
in addition to the physical port itself as
they may also manage and monitor
these connections, and clients of these
third-parties may also be able to connect
from the same colocation facility either
from their own racks or using the thirdparty’s managed racks and
infrastructure which may provide
further cost-savings. The Exchange
believes such third-party resellers may
also use the Exchange’s connectivity as
an incentive for market participants to
purchase further services such as
hosting services. That is, even firms that
wish to utilize a single, dedicated 10 Gb
port (i.e., use one single 10 Gb port
themselves instead of sharing a port
with other firms), may still realize cost
savings via a third-party reseller as it
geographically dispersed by establishing
connectivity to all of the different exchanges, so the
customers themselves do not have to. Many of the
third-party connectivity resellers also act as
distribution agents for all of the market data
generated by the exchanges as they can use their
established connectivity to subscribe to, and
redistribute, data over their networks. This may
remove barriers that infrastructure requirements
may otherwise pose for customers looking to access
multiple markets and real-time data feeds. This
facilitation of overall access to the marketplace is
ultimately beneficial for the entire capital markets
ecosystem, including the Exchange, on which such
firms transact business.
20 See, e.g., Nasdaq Price List—U.S. Direct
Connection and Extranet Fees, available at, US
Direct-Extranet Connection (nasdaqtrader.com);
and Securities Exchange Act Release Nos. 74077
(January 16, 2022), 80 FR 3683 (January 23, 2022)
(SR–NASDAQ–2015–002); and 82037 (November 8,
2022), 82 FR 52953 (November 15, 2022) (SR–
NASDAQ–2017–114).
21 For example, a third-party reseller may
purchase one 10 Gbps physical port from the
Exchange and resell that connectivity to three
different market participants who may only need 3
Gbps each and leverage the same single port.
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relates to a physical port because such
reseller may be providing a discount on
the physical port to incentivize the
purchase of additional services and
infrastructure support alongside the
physical port offering (e.g., providing
space, hosting, power, and other longhaul connectivity options). This is
similar to cell phone carriers offering a
new iPhone at a discount (or even at no
cost) if purchased in connection with a
new monthly phone plan. These
services may reevaluate reselling or
offering Cboe’s direct connectivity if
they deem the fees to be excessive.
Further, as noted above, the Exchange
does not receive any connectivity
revenue when connectivity is resold by
a third-party, which often is resold to
multiple customers, some of whom are
agency broker-dealers that have
numerous customers of their own.
Therefore, given the availability of
third-party providers that also offer
connectivity solutions, the Exchange
believes participation on the Exchange
remains affordable (notwithstanding the
proposed fee change) for all market
participants, including trading firms
that may be able to take advantage of
lower costs that result from mutualized
connectivity and/or from other services
provided alongside the physical port
offerings. Because third-party resellers
also act as a viable alternative to direct
connectivity to the Exchange, the price
that the Exchange is able to charge for
direct connectivity to its Exchange is
constrained. Moreover, if the Exchange
were to assess supracompetitve rates,
members and non-members (such as
third-party resellers) alike, may decide
not to purchase, or to reduce its use of,
the Exchange’s direct connectivity.
Disincentivizing market participants
from purchasing Exchange connectivity
would only serve to discourage
participation on the Exchange which
ultimately does not benefit the
Exchange. Further, the Exchange
believes its offerings are more affordable
as compared to similar offerings at
competitor exchanges.22
Accordingly, the vigorous
competition among national securities
exchanges provides many alternatives
for firms to voluntarily decide whether
22 See e.g., The Nasdaq Stock Market LLC
(‘‘Nasdaq’’), General 8, Connectivity to the
Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gbps
Ultra fiber connection to the respective exchange,
which is analogous to the Exchange’s 10Gbps
physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE
Chicago Inc., NYSE National, Inc. Connectivity Fee
Schedule, which provides that 10 Gbps LX LCN
Circuits (which are analogous to the Exchange’s 10
Gbps physical port) are assessed $22,000 per
month, per port.
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direct connectivity to the Exchange is
appropriate and worthwhile, and as
noted above, no broker-dealer is
required to become a Member of the
Exchange, let alone connect directly to
it. In the event that a market participant
views the Exchange’s proposed fee
change as more or less attractive than
the competition, that market participant
can choose to connect to the Exchange
indirectly or may choose not to connect
to that exchange and connect instead to
one or more of the other 13 non-Cboe
affiliated options markets. Indeed,
market participants are free to choose
which exchange or reseller to use to
satisfy their business needs. Moreover,
if the Exchange charges excessive fees,
it may stand to lose not only
connectivity revenues but also revenues
associated with the execution of orders
routed to it, and, to the extent
applicable, market data revenues. The
Exchange believes that this competitive
dynamic imposes powerful restraints on
the ability of any exchange to charge
unreasonable fees for connectivity.
Notwithstanding the foregoing, the
Exchange still believes that the
proposed fee increase is reasonable,
equitably allocated and not unfairly
discriminatory, even for market
participants that determine to connect
directly to the Exchange for business
purposes, as those business reasons
should presumably result in revenue
capable of covering the proposed fee.
The Exchange lastly notes that it is
not required by the Exchange Act, nor
any other rule or regulation, to
undertake a cost-of-service or ratemaking approach with respect to fee
proposals. Moreover, Congress’s intent
in enacting the 1975 Amendments to the
Act was to enable competition—rather
than government order—to determine
prices. The principal purpose of the
amendments was to facilitate the
creation of a national market system for
the trading of securities. Congress
intended that this ‘‘national market
system evolve through the interplay of
competitive forces as unnecessary
regulatory restrictions are removed.’’ 23
Other provisions of the Act confirm that
intent. For example, the Act provides
that an exchange must design its rules
‘‘to remove impediments to and perfect
the mechanism of a free and open
market and a national market system,
and, in general, to protect investors and
the public interest.’’ 24 Likewise, the Act
grants the Commission authority to
amend or repeal ‘‘[t]he rules of [an]
exchange [that] impose any burden on
23 See H.R. Rep. No. 94–229, at 92 (1975) (Conf.
Rep.) (emphasis added).
24 15 U.S.C. 78f(b)(5).
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competition not necessary or
appropriate in furtherance of the
purposes of this chapter.’’ 25 In short,
the promotion of free and open
competition was a core congressional
objective in creating the national market
system.26 Indeed, the Commission has
historically interpreted that mandate to
promote competitive forces to determine
prices whenever compatible with a
national market system. Accordingly,
the Exchange believes it has met its
burden to demonstrate that its proposed
fee change is reasonable and consistent
with the immediate filing process
chosen by Congress, which created a
system whereby market forces
determine access fees in the vast
majority of cases, subject to oversight
only in particular cases of abuse or
market failure. Lastly, and importantly,
the Exchange believes that, even if it
were possible as a matter of economic
theory, cost-based pricing for the
proposed fee would be so complicated
that it could not be done practically.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed fee change will not impact
intramarket competition because it will
apply to all similarly situated TPHs
equally (i.e., all market participants that
choose to purchase the 10 Gbps physical
port). Additionally, the Exchange does
not believe its proposed pricing will
impose a barrier to entry to smaller
participants and notes that its proposed
connectivity pricing is associated with
relative usage of the various market
participants. For example, market
participants with modest capacity needs
can continue to buy the less expensive
1 Gbps physical port (which cost is not
changing) or may choose to obtain
access via a third-party reseller. While
pricing may be increased for the larger
capacity physical ports, such options
provide far more capacity and are
purchased by those that consume more
resources from the network.
Accordingly, the proposed connectivity
fees do not favor certain categories of
25 15
U.S.C. 78f(8).
also 15 U.S.C. 78k–l(a)(1)(C)(ii) (purposes
of Exchange Act include to promote ‘‘fair
competition among brokers and dealers, among
exchange markets, and between exchange markets
and markets other than exchange markets’’); Order,
73 FR at 74781 (‘‘The Exchange Act and its
legislative history strongly support the
Commission’s reliance on competition, whenever
possible, in meeting its regulatory responsibilities
for overseeing the SROs and the national market
system.’’).
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26 See
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market participants in a manner that
would impose a burden on competition;
rather, the allocation reflects the
network resources consumed by the
various size of market participants—
lowest bandwidth consuming members
pay the least, and highest bandwidth
consuming members pays the most.
The Exchange’s proposed fee is also
still lower than some fees for similar
connectivity on other exchanges and
therefore may stimulate intermarket
competition by attracting additional
firms to connect to the Exchange or at
least should not deter interested
participants from connecting directly to
the Exchange. Further, if the changes
proposed herein are unattractive to
market participants, the Exchange can,
and likely will, see a decline in
connectivity via 10 Gbps physical ports
as a result. The Exchange operates in a
highly competitive market in which
market participants can determine
whether or not to connect directly to the
Exchange based on the value received
compared to the cost of doing so.
Indeed, market participants have
numerous alternative venues that they
may participate on and direct their
order flow, including 13 non-Cboe
affiliated options markets, as well as offexchange venues, where competitive
products are available for trading.
Moreover, the Commission has
repeatedly expressed its preference for
competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. Specifically, in Regulation
NMS, the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 27 The
fact that this market is competitive has
also long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit
stated as follows: ‘‘[n]o one disputes
that competition for order flow is
‘fierce.’ . . . As the SEC explained, ‘[i]n
the U.S. national market system, buyers
and sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
27 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
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Frm 00105
Fmt 4703
Sfmt 4703
dealers’. . . .’’.28 Accordingly, the
Exchange does not believe its proposed
change imposes any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to section 19(b)(3)(A)
of the Act 29 and paragraph (f) of Rule
19b–4 30 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
C2–2023–025 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–C2–2023–025. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
28 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSEArca–2006–21)).
29 15 U.S.C. 78s(b)(3)(A).
30 17 CFR 240.19b–4(f).
E:\FR\FM\28DEN1.SGM
28DEN1
Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Notices
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–C2–2023–025 and should be
submitted on or before January 18, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023–28606 Filed 12–27–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99221; File No. SR–
CboeEDGX–2023–080]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fees Schedule Related to Physical
Port Fees
khammond on DSKJM1Z7X2PROD with NOTICES
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
12, 2023, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGX’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
31 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
20:14 Dec 27, 2023
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’)
proposes to amend its Fees Schedule.
The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
fee schedule for its equity options
platform (‘‘EDGX Options’’) relating to
physical connectivity fees.3
By way of background, a physical port
is utilized by a Member or non-Member
to connect to the Exchange at the data
centers where the Exchange’s servers are
located. The Exchange currently
3 The
December 21, 2023.
VerDate Sep<11>2014
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
Jkt 262001
Exchange initially filed the proposed fee
changes on July 3, 2023 (SR–CboeEDGX–2023–045).
On September 1, 2023, the Exchange withdrew that
filing and submitted SR–CboeEDGX–2023–058. On
September 29, 2023, the Securities and Exchange
Commission issued a Suspension of and Order
Instituting Proceedings to Determine whether to
Approve or Disapprove a Proposed Rule Change to
Amend its Fees Schedule Related to Physical Port
Fees (the ‘‘OIP’’). On September 29, 2023, the
Exchange filed the proposed fee change (SR–
CboeEDGX–2023–063). On October 13, 2023, the
Exchange withdrew that filing and submitted SR–
CboeEDGX–2023–064. On December 12, 2023, the
Exchange withdrew that filing and submitted this
filing.
PO 00000
Frm 00106
Fmt 4703
Sfmt 4703
89759
assesses the following physical
connectivity fees for Members and nonMembers on a monthly basis: $2,500 per
physical port for a 1 gigabit (‘‘Gb’’)
circuit and $7,500 per physical port for
a 10 Gb circuit. The Exchange proposes
to increase the monthly fee for 10 Gb
physical ports from $7,500 to $8,500 per
port. The Exchange notes the proposed
fee change better enables it to continue
to maintain and improve its market
technology and services and also notes
that the proposed fee amount, even as
amended, continues to be in line with,
or even lower than, amounts assessed by
other exchanges for similar
connections.4 The physical ports may
also be used to access the Systems for
the following affiliate exchanges and
only one monthly fee currently (and
will continue) to apply per port: the
Exchange’s equities platform (EDGX
Equities), Cboe BZX Exchange, Inc.
(options and equities platforms), Cboe
BYX Exchange, Inc., Cboe EDGA
Exchange, Inc., and Cboe C2 Exchange,
Inc. (‘‘Affiliate Exchanges’’).5
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
section 6(b) of the Act.6 Specifically, the
Exchange believes the proposed rule
change is consistent with the section
6(b)(5) 7 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
4 See e.g., The Nasdaq Stock Market LLC
(‘‘Nasdaq’’), General 8, Connectivity to the
Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gb Ultra
fiber connection to the respective exchange, which
is analogous to the Exchange’s 10Gb physical port.
See also New York Stock Exchange LLC, NYSE
American LLC, NYSE Arca, Inc., NYSE Chicago
Inc., NYSE National, Inc. Connectivity Fee
Schedule, which provides that 10 Gb LX LCN
Circuits (which are analogous to the Exchange’s 10
Gb physical port) are assessed $22,000 per month,
per port.
5 The Affiliate Exchanges are also submitting
contemporaneous identical rule filings.
6 15 U.S.C. 78f(b).
7 15 U.S.C. 78f(b)(5).
E:\FR\FM\28DEN1.SGM
28DEN1
Agencies
[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Notices]
[Pages 89755-89759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28606]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99220; File No. SR-C2-2023-025]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule Related to Physical Port Fees
December 21, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 12, 2023, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2 Options'')
proposes to amend its Fees Schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule relating to
physical connectivity fees.\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed fee changes on
July 3, 2023 (SR-C2-2023-014). On September 1, 2023, the Exchange
withdrew that filing and submitted SR-C2-2023-020. On September 29,
2023, the Securities and Exchange Commission issued a Suspension of
and Order Instituting Proceedings to Determine whether to Approve or
Disapprove a Proposed Rule Change to Amend its Fees Schedule Related
to Physical Port Fees (the ``OIP''). On September 29, 2023, the
Exchange filed the proposed fee change (SR-C2-2023-021). On October
13, 2023, the Exchange withdrew that filing and submitted SR-C2-
2023-022. On December 12, 2023, the Exchange withdrew that filing
and submitted this filing.
---------------------------------------------------------------------------
By way of background, a physical port is utilized by a Member or
non-Member to connect to the Exchange at the data centers where the
Exchange's servers are located. The Exchange currently assesses the
following physical connectivity fees for Trading Permit Holders
(``TPHs'') and non-TPHs on a monthly basis: $2,500 per physical port
for a 1 gigabit (``Gbps'') circuit and $7,500 per physical port for a
10 Gbps circuit. The Exchange proposes to increase the monthly fee for
10 Gbps physical ports from $7,500 to $8,500 per port. The Exchange
notes the proposed fee change better enables it to continue to maintain
and improve its market technology and services and also notes that the
proposed fee amount, even as amended, continues to be in line with, or
even lower than, amounts assessed by other exchanges for similar
connections.\4\ The physical ports may also be used to access the
Systems for the following affiliate exchanges and only one monthly fee
currently (and will continue) to apply per port: Cboe BZX Exchange,
Inc. (options and equities platforms), Cboe EDGX Exchange, Inc.
(options and equities platforms), Cboe BYX Exchange, Inc., and Cboe
EDGA Exchange, Inc. (``Affiliate Exchanges'').\5\
---------------------------------------------------------------------------
\4\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gbps Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10Gbps physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule, which provides that 10
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps
physical port) are assessed $22,000 per month, per port.
\5\ The Affiliate Exchanges are also submitting contemporaneous
identical rule filings.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of section 6(b) of the Act.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \7\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \8\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with section 6(b)(4) \9\ of the Act, which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its
[[Page 89756]]
TPHs and other persons using its facilities.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
\9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes the proposed fee change is reasonable as it
reflects a moderate increase in physical connectivity fees for 10 Gbps
physical ports. Further, the current 10 Gbps physical port fee has
remained unchanged since June 2018.\10\ Since its last increase 5 years
ago however, there has been notable inflation. Particularly, the dollar
has had an average inflation rate of 3.9% per year between 2018 and
today, producing a cumulative price increase of approximately 21.1%
inflation since the fee for the 10 Gbps physical port was last
modified.\11\ Moreover, the Exchange historically does not increase
fees every year, notwithstanding inflation. Accordingly, the Exchange
believes the proposed fee is reasonable as it represents only an
approximate 13% increase from the rates adopted five years ago,
notwithstanding the cumulative rate of 21.1%. The Exchange is also
unaware of any standard that suggests any fee proposal that exceeds a
certain yearly or cumulative inflation rate is unreasonable.
---------------------------------------------------------------------------
\10\ See Securities and Exchange Release No. 83455 (June 15,
2018), 83 FR 28892 (June 21, 2018) (SR-C2-2018-014).
\11\ See https://www.officialdata.org/us/inflation/2010?amount=1.
---------------------------------------------------------------------------
The Exchange also believes the proposed fee is reasonable as it is
still in line with, or even lower than, amounts assessed by other
exchanges for similar connections.\12\ Indeed, the Exchange believes
assessing fees that are a lower rate than fees assessed by other
exchanges for analogous connectivity (which were similarly adopted via
the rule filing process and filed with the Commission) is reasonable.
As noted above, the proposed fee is also the same as is concurrently
being proposed for its Affiliate Exchanges. Further, TPHs are able to
utilize a single port to connect to any of the Affiliate Exchanges with
no additional fee assessed for that same physical port. Particularly,
the Exchange believes the proposed monthly per port fee is reasonable,
equitable and not unfairly discriminatory as it is assessed only once,
even if it connects with another affiliate exchange since only one port
is being used and the Exchange does not wish to charge multiple fees
for the same port. Indeed, the Exchange notes that several ports are in
fact purchased and utilized across one or more of the Exchange's
affiliated Exchanges (and charged only once).
---------------------------------------------------------------------------
\12\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gbps Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10Gbps physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule, which provides that 10
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps
physical port) are assessed $22,000 per month, per port.
---------------------------------------------------------------------------
The Exchange also believes that the proposed fee change is not
unfairly discriminatory because it would be assessed uniformly across
all market participants that purchase the physical ports. The Exchange
believes increasing the fee for 10 Gbps physical ports and charging a
higher fee as compared to the 1 Gbps physical port is equitable as the
1 Gbps physical port is \1/10\th the size of the 10 Gbps physical port
and therefore does not offer access to many of the products and
services offered by the Exchange (e.g., ability to receive certain
market data products). Thus, the value of the 1 Gbps alternative is
lower than the value of the 10 Gbps alternative, when measured based on
the type of Exchange access it offers. Moreover, market participants
that purchase 10 Gbps physical ports utilize the most bandwidth and
therefore consume the most resources from the network. As such, the
Exchange believes the proposed fee change for 10 Gbps physical ports is
reasonably and appropriately allocated.
The Exchange also notes TPHs and non-TPHs will continue to choose
the method of connectivity based on their specific needs and no broker-
dealer is required to become a TPH of, let alone connect directly to,
the Exchange. There is also no regulatory requirement that any market
participant connect to any one particular exchange. Moreover, direct
connectivity is not a requirement to participate on the Exchange. The
Exchange also believes substitutable products and services are
available to market participants, including, among other things, other
options exchanges that a market participant may connect to in lieu of
the Exchange, indirect connectivity to the Exchange via a third-party
reseller of connectivity, and/or trading of any options product, such
as within the Over-the-Counter (OTC) markets which do not require
connectivity to the Exchange. Indeed, there are currently 17 registered
options exchanges that trade options (13 of which are not affiliated
with Cboe), some of which have similar or lower connectivity fees.\13\
Based on publicly available information, no single options exchange has
more than approximately 20% of the market share.\14\ Further, low
barriers to entry mean that new exchanges may rapidly enter the market
and offer additional substitute platforms to further compete with the
Exchange and the products it offers. For example, there are 4 exchanges
that have been added in the U.S. options markets in the last 5 years
(i.e., Nasdaq MRX, LLC, MIAX Pearl, LLC, MIAX Emerald LLC, and most
recently, MEMX LLC).
---------------------------------------------------------------------------
\13\ Id.
\14\ See Cboe Global Markets U.S. Options Market Volume Summary
(October 13, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------
As noted above, there is no regulatory requirement that any market
participant connect to any one options exchange, nor that any market
participant connect at a particular connection speed or act in a
particular capacity on the Exchange, or trade any particular product
offered on an exchange. Moreover, membership is not a requirement to
participate on the Exchange. Indeed, the Exchange is unaware of anyone
options exchange whose membership includes every registered broker-
dealer. By way of example, while the Exchange has 52 TPHs, Cboe BZX has
61 members that trade options, and Cboe EDGX has 51 members that trade
options. There is also no firm that is a Member of C2 Options only.
Further, based on publicly available information regarding a sample of
the Exchange's competitors, NYSE American Options has 71 members,\15\
and NYSE Arca Options has 69 members,\16\ MIAX Options has 46 members
\17\ and MIAX Pearl Options has 40 members.\18\
---------------------------------------------------------------------------
\15\ See https://www.nyse.com/markets/american-options/membership#directory.
\16\ See https://www.nyse.com/markets/arca-options/membership#directory.
\17\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf.
\18\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf.
---------------------------------------------------------------------------
A market participant may also submit orders to the Exchange via a
Member broker or a third-party reseller of connectivity. The Exchange
notes that third-party non-TPHs also resell exchange connectivity. This
indirect connectivity is another viable alternative for market
participants to trade on the Exchange without connecting directly to
the Exchange (and thus not pay the Exchange connectivity fees), which
alternative is already being used by non-TPHs and further constrains
the price that the Exchange is able to charge for connectivity to its
Exchange.\19\ The
[[Page 89757]]
Exchange notes that it could, but chooses not to, preclude market
participants from reselling its connectivity. Unlike other exchanges,
the Exchange also chooses not to adopt fees that would be assessed to
third-party resellers on a per customer basis (i.e., fee based on
number of TPHs that connect to the Exchange indirectly via the third-
party).\20\ Particularly, these third-party resellers may purchase the
Exchange's physical ports and resell access to such ports either alone
or as part of a package of services. The Exchange notes that multiple
TPHs are able to share a single physical port (and corresponding
bandwidth) with other non-affiliated TPHs if purchased through a third-
party reseller.\21\ This allows resellers to mutualize the costs of the
ports for market participants and provide such ports at a price that
may be lower than the Exchange charges due to this mutualized
connectivity. These third-party sellers may also provide an additional
value to market participants in addition to the physical port itself as
they may also manage and monitor these connections, and clients of
these third-parties may also be able to connect from the same
colocation facility either from their own racks or using the third-
party's managed racks and infrastructure which may provide further
cost-savings. The Exchange believes such third-party resellers may also
use the Exchange's connectivity as an incentive for market participants
to purchase further services such as hosting services. That is, even
firms that wish to utilize a single, dedicated 10 Gb port (i.e., use
one single 10 Gb port themselves instead of sharing a port with other
firms), may still realize cost savings via a third-party reseller as it
relates to a physical port because such reseller may be providing a
discount on the physical port to incentivize the purchase of additional
services and infrastructure support alongside the physical port
offering (e.g., providing space, hosting, power, and other long-haul
connectivity options). This is similar to cell phone carriers offering
a new iPhone at a discount (or even at no cost) if purchased in
connection with a new monthly phone plan. These services may reevaluate
reselling or offering Cboe's direct connectivity if they deem the fees
to be excessive. Further, as noted above, the Exchange does not receive
any connectivity revenue when connectivity is resold by a third-party,
which often is resold to multiple customers, some of whom are agency
broker-dealers that have numerous customers of their own. Therefore,
given the availability of third-party providers that also offer
connectivity solutions, the Exchange believes participation on the
Exchange remains affordable (notwithstanding the proposed fee change)
for all market participants, including trading firms that may be able
to take advantage of lower costs that result from mutualized
connectivity and/or from other services provided alongside the physical
port offerings. Because third-party resellers also act as a viable
alternative to direct connectivity to the Exchange, the price that the
Exchange is able to charge for direct connectivity to its Exchange is
constrained. Moreover, if the Exchange were to assess supracompetitve
rates, members and non-members (such as third-party resellers) alike,
may decide not to purchase, or to reduce its use of, the Exchange's
direct connectivity. Disincentivizing market participants from
purchasing Exchange connectivity would only serve to discourage
participation on the Exchange which ultimately does not benefit the
Exchange. Further, the Exchange believes its offerings are more
affordable as compared to similar offerings at competitor
exchanges.\22\
---------------------------------------------------------------------------
\19\ Third-party resellers of connectivity play an important
role in the capital markets infrastructure ecosystem. For example,
third-party resellers can help unify access for customers who want
exposure to multiple financial markets that are geographically
dispersed by establishing connectivity to all of the different
exchanges, so the customers themselves do not have to. Many of the
third-party connectivity resellers also act as distribution agents
for all of the market data generated by the exchanges as they can
use their established connectivity to subscribe to, and
redistribute, data over their networks. This may remove barriers
that infrastructure requirements may otherwise pose for customers
looking to access multiple markets and real-time data feeds. This
facilitation of overall access to the marketplace is ultimately
beneficial for the entire capital markets ecosystem, including the
Exchange, on which such firms transact business.
\20\ See, e.g., Nasdaq Price List--U.S. Direct Connection and
Extranet Fees, available at, US Direct-Extranet Connection
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022)
(SR-NASDAQ-2017-114).
\21\ For example, a third-party reseller may purchase one 10
Gbps physical port from the Exchange and resell that connectivity to
three different market participants who may only need 3 Gbps each
and leverage the same single port.
\22\ See e.g., The Nasdaq Stock Market LLC (``Nasdaq''), General
8, Connectivity to the Exchange. Nasdaq and its affiliated exchanges
charge a monthly fee of $15,000 for each 10Gbps Ultra fiber
connection to the respective exchange, which is analogous to the
Exchange's 10Gbps physical port. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule, which provides that 10
Gbps LX LCN Circuits (which are analogous to the Exchange's 10 Gbps
physical port) are assessed $22,000 per month, per port.
---------------------------------------------------------------------------
Accordingly, the vigorous competition among national securities
exchanges provides many alternatives for firms to voluntarily decide
whether direct connectivity to the Exchange is appropriate and
worthwhile, and as noted above, no broker-dealer is required to become
a Member of the Exchange, let alone connect directly to it. In the
event that a market participant views the Exchange's proposed fee
change as more or less attractive than the competition, that market
participant can choose to connect to the Exchange indirectly or may
choose not to connect to that exchange and connect instead to one or
more of the other 13 non-Cboe affiliated options markets. Indeed,
market participants are free to choose which exchange or reseller to
use to satisfy their business needs. Moreover, if the Exchange charges
excessive fees, it may stand to lose not only connectivity revenues but
also revenues associated with the execution of orders routed to it,
and, to the extent applicable, market data revenues. The Exchange
believes that this competitive dynamic imposes powerful restraints on
the ability of any exchange to charge unreasonable fees for
connectivity. Notwithstanding the foregoing, the Exchange still
believes that the proposed fee increase is reasonable, equitably
allocated and not unfairly discriminatory, even for market participants
that determine to connect directly to the Exchange for business
purposes, as those business reasons should presumably result in revenue
capable of covering the proposed fee.
The Exchange lastly notes that it is not required by the Exchange
Act, nor any other rule or regulation, to undertake a cost-of-service
or rate-making approach with respect to fee proposals. Moreover,
Congress's intent in enacting the 1975 Amendments to the Act was to
enable competition--rather than government order--to determine prices.
The principal purpose of the amendments was to facilitate the creation
of a national market system for the trading of securities. Congress
intended that this ``national market system evolve through the
interplay of competitive forces as unnecessary regulatory restrictions
are removed.'' \23\ Other provisions of the Act confirm that intent.
For example, the Act provides that an exchange must design its rules
``to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest.'' \24\ Likewise, the Act grants the
Commission authority to amend or repeal ``[t]he rules of [an] exchange
[that] impose any burden on
[[Page 89758]]
competition not necessary or appropriate in furtherance of the purposes
of this chapter.'' \25\ In short, the promotion of free and open
competition was a core congressional objective in creating the national
market system.\26\ Indeed, the Commission has historically interpreted
that mandate to promote competitive forces to determine prices whenever
compatible with a national market system. Accordingly, the Exchange
believes it has met its burden to demonstrate that its proposed fee
change is reasonable and consistent with the immediate filing process
chosen by Congress, which created a system whereby market forces
determine access fees in the vast majority of cases, subject to
oversight only in particular cases of abuse or market failure. Lastly,
and importantly, the Exchange believes that, even if it were possible
as a matter of economic theory, cost-based pricing for the proposed fee
would be so complicated that it could not be done practically.
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\23\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.)
(emphasis added).
\24\ 15 U.S.C. 78f(b)(5).
\25\ 15 U.S.C. 78f(8).
\26\ See also 15 U.S.C. 78k-l(a)(1)(C)(ii) (purposes of Exchange
Act include to promote ``fair competition among brokers and dealers,
among exchange markets, and between exchange markets and markets
other than exchange markets''); Order, 73 FR at 74781 (``The
Exchange Act and its legislative history strongly support the
Commission's reliance on competition, whenever possible, in meeting
its regulatory responsibilities for overseeing the SROs and the
national market system.'').
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed fee change will
not impact intramarket competition because it will apply to all
similarly situated TPHs equally (i.e., all market participants that
choose to purchase the 10 Gbps physical port). Additionally, the
Exchange does not believe its proposed pricing will impose a barrier to
entry to smaller participants and notes that its proposed connectivity
pricing is associated with relative usage of the various market
participants. For example, market participants with modest capacity
needs can continue to buy the less expensive 1 Gbps physical port
(which cost is not changing) or may choose to obtain access via a
third-party reseller. While pricing may be increased for the larger
capacity physical ports, such options provide far more capacity and are
purchased by those that consume more resources from the network.
Accordingly, the proposed connectivity fees do not favor certain
categories of market participants in a manner that would impose a
burden on competition; rather, the allocation reflects the network
resources consumed by the various size of market participants--lowest
bandwidth consuming members pay the least, and highest bandwidth
consuming members pays the most.
The Exchange's proposed fee is also still lower than some fees for
similar connectivity on other exchanges and therefore may stimulate
intermarket competition by attracting additional firms to connect to
the Exchange or at least should not deter interested participants from
connecting directly to the Exchange. Further, if the changes proposed
herein are unattractive to market participants, the Exchange can, and
likely will, see a decline in connectivity via 10 Gbps physical ports
as a result. The Exchange operates in a highly competitive market in
which market participants can determine whether or not to connect
directly to the Exchange based on the value received compared to the
cost of doing so. Indeed, market participants have numerous alternative
venues that they may participate on and direct their order flow,
including 13 non-Cboe affiliated options markets, as well as off-
exchange venues, where competitive products are available for trading.
Moreover, the Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Specifically, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \27\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
Circuit stated as follows: ``[n]o one disputes that competition for
order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S.
national market system, buyers and sellers of securities, and the
broker-dealers that act as their order-routing agents, have a wide
range of choices of where to route orders for execution'; [and] `no
exchange can afford to take its market share percentages for granted'
because `no exchange possesses a monopoly, regulatory or otherwise, in
the execution of order flow from broker dealers'. . . .''.\28\
Accordingly, the Exchange does not believe its proposed change imposes
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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\27\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\28\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A) of the Act \29\ and paragraph (f) of Rule 19b-4 \30\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-C2-2023-025 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-C2-2023-025. This file
number should be included on the subject line if email is used. To help
the Commission process and review your
[[Page 89759]]
comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to file number
SR-C2-2023-025 and should be submitted on or before January 18, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28606 Filed 12-27-23; 8:45 am]
BILLING CODE 8011-01-P