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, 33407-33411 [2024-09069]
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Federal Register / Vol. 89, No. 83 / Monday, April 29, 2024 / Notices
agreement from the Market Dominant or
the Competitive product list, or the
modification of an existing product
currently appearing on the Market
Dominant or the Competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
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Postal Service for each request. For each
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officer of the Commission to represent
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proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
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The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3011.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern Market Dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3030, and 39
CFR part 3040, subpart B. For request(s)
that the Postal Service states concern
Competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3035, and
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deadline(s) for each request appear in
section II.
39 CFR 3040.130 through 3040.135, and
39 CFR 3035.105; Public Representative:
Alain Brou; Comments Due: April 30,
2024.
3. Docket No(s).: MC2024–245 and
CP2024–251; Filing Title: USPS Request
to Add Priority Mail & USPS Ground
Advantage Contract 225 to Competitive
Product List and Notice of Filing
Materials Under Seal; Filing Acceptance
Date: April 22, 2024; Filing Authority:
39 U.S.C. 3642, 39 CFR 3040.130
through 3040.135, and 39 CFR 3035.105;
Public Representative: Alain Brou;
Comments Due: April 30, 2024.
4. Docket No(s).: MC2024–246 and
CP2024–252; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 60 to Competitive Product List
and Notice of Filing Materials Under
Seal; Filing Acceptance Date: April 22,
2024; Filing Authority: 39 U.S.C. 3642,
39 CFR 3040.130 through 3040.135, and
39 CFR 3035.105; Public Representative:
Arif Hafiz; Comments Due: April 30,
2024.
5. Docket No(s).: MC2024–247 and
CP2024–253; Filing Title: USPS Request
to Add Priority Mail & USPS Ground
Advantage Contract 226 to Competitive
Product List and Notice of Filing
Materials Under Seal; Filing Acceptance
Date: April 22, 2024; Filing Authority:
39 U.S.C. 3642, 39 CFR 3040.130
through 3040.135, and 39 CFR 3035.105;
Public Representative: Arif Hafiz;
Comments Due: April 30, 2024
This Notice will be published in the
Federal Register.
3. Executive Session.
4. Administrative Items.
Erica A. Barker,
Secretary.
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 April 9,
2024, 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.
[FR Doc. 2024–09128 Filed 4–26–24; 8:45 am]
BILLING CODE 7710–FW–P
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II. Docketed Proceeding(s)
1. Docket No(s).: CP2022–110; Filing
Title: USPS Notice of Amendment to
Priority Mail Express, Priority Mail,
First-Class Package Service & Parcel
Select Contract 20, Filed Under Seal;
Filing Acceptance Date: April 22, 2024;
Filing Authority: 39 CFR 3035.105;
Public Representative: Christopher C.
Mohr; Comments Due: April 30, 2024.
2. Docket No(s).: MC2024–244 and
CP2024–250; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 55 to Competitive Product List
and Notice of Filing Materials Under
Seal; Filing Acceptance Date: April 22,
2024; Filing Authority: 39 U.S.C. 3642,
1 See
Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
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33407
POSTAL SERVICE
Sunshine Act Meetings
Thursday, May 9, 2024,
at 9:00 a.m.; Thursday, May 9, 2024, at
3:00 p.m.
PLACE: Washington, DC, at U.S. Postal
Service Headquarters, 475 L’Enfant
Plaza, SW, in the Benjamin Franklin
Room.
STATUS: Thursday, May 9, 2024, at 9:00
a.m.—Closed. Thursday, May 9, 2024, at
3:00 p.m.—Open.
MATTERS TO BE CONSIDERED:
TIME AND DATE:
Meeting of the Board of Governors
Thursday, May 9, 2024, at 9:00 a.m.
(Closed)
1. Strategic Issues.
2. Financial and Operational Matters.
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Thursday, May 9, 2024, at 3:00 p.m.
(Open)
1. Remarks of the Chairman of the Board
of Governors.
2. Remarks of the Postmaster General
and CEO.
3. Approval of the Minutes.
4. Committee Reports.
5. Quarterly Financial Report.
6. Quarterly Service Performance
Report.
7. Approval of Tentative Agenda for
August 8 Open Meeting.
CONTACT PERSON FOR MORE INFORMATION:
Michael J. Elston, Secretary of the Board
of Governors, U.S. Postal Service, 475
L’Enfant Plaza, SW, Washington, DC
20260–1000. Telephone: (202) 268–
4800.
Michael J. Elston,
Secretary.
[FR Doc. 2024–09262 Filed 4–25–24; 4:15 pm]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100012; File No. SR–C2–
2024–005]
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
April 23, 2024.
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
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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
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1. Purpose
The Exchange proposes to amend its
fee schedule relating to physical
connectivity fees.3
By way of background, a physical port
is utilized by a Member or non-Member
to connect to the Exchange at the data
centers where the Exchange’s servers are
located. The Exchange currently
assesses the following physical
connectivity fees for Trading Permit
Holders (‘‘TPHs’’) and non-TPHs on a
monthly basis: $2,500 per physical port
for a 1 gigabit (‘‘Gbps’’) circuit and
$7,500 per physical port for a 10 Gbps
circuit. The Exchange proposes to
increase the monthly fee for 10 Gbps
physical ports from $7,500 to $8,500 per
port. The Exchange notes the proposed
fee change better enables it to continue
to maintain and improve its market
technology and services and also notes
that the proposed fee amount, even as
amended, continues to be in line with,
or even lower than, amounts assessed by
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 SR–C2–2023–025. On
February 9, 2024, the Exchange withdrew that filing
and submitted SR–C2–2024–004. On April 9, 2024,
the Exchange withdrew that filing and submitted
this filing.
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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
TPHs and other persons using its
facilities.
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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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 over 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, and in any event,
in this instance the increase is well
below the cumulative rate.
Additionally, the Exchange believes
the proposed fee increase is reasonable
in light of recent and anticipated
connectivity-related upgrades and
changes. The Exchange and its affiliated
exchanges recently launched a multiyear initiative to improve Cboe
Exchange Platform performance and
capacity requirements to increase
competitiveness, support growth and
advance a consistent world class
platform. The goal of the project, among
other things, is to provide faster and
more consistent order handling and
matching performance for options,
while ensuring quicker processing time
and supporting increasing volumes and
capacity needs. For example, the
Exchange recently performed switch
hardware upgrades. Particularly, the
Exchange replaced existing customer
access switches with newer models,
which the Exchange believes resulted in
increased determinism. The recent
switch upgrades also increased the
Exchange’s capacity to accommodate
more physical ports by nearly 50%.
Network bandwidth was also increased
nearly two-fold as a result of the
upgrades, which among other things,
can lead to reduce message queuing.
The Exchange also believes these newer
models result in less natural variance in
10 See Securities and Exchange Release No. 83455
(June 15, 2018), 83 FR 28892 (June 21, 2018) (SR–
C2–2018–014).
11 See https://www.officialdata.org/us/inflation/
2010?amount=1.
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the processing of messages. The
Exchange notes that it incurred costs
associated with purchasing and
upgrading to these newer models, of
which the Exchange has not otherwise
passed through or offset.
As of April 1, 2024, market
participants also having the option of
connecting to a new data center (i.e.,
Secaucus NY6 Data Center (‘‘NY6’’)), in
addition to the current data centers at
NY4 and NY5. The Exchange made NY6
available in response to customer
requests in connection with their need
for additional space and capacity. In
order to make this space available, the
Exchange expended significant
resources to prepare this space, and will
also incur ongoing costs with respect to
maintaining this offering, including
costs related to power, space, fiber,
cabinets, panels, labor and maintenance
of racks. The Exchange also incurred a
large cost with respect to ensuring NY6
would be latency equalized, as it is for
NY4 and NY5.
The Exchange also has made various
other improvements since the current
physical port rates were adopted in
2018. For example, the Exchange has
updated its customer portal to provide
more transparency with respect to firms’
respective connectivity subscriptions,
enabling them to better monitor,
evaluate and adjust their connections
based on their evolving business needs.
The Exchange also performs proactive
audits on a weekly basis to ensure that
all customer cross connects continue to
fall within allowable tolerances for
Latency Equalized connections.
Accordingly, the Exchange expended,
and will continue to expend, resources
to innovate and modernize technology
so that it may benefit its Members and
continue to compete among other
options markets. The ability to continue
to innovate with technology and offer
new products to market participants
allows the Exchange to remain
competitive in the options space which
currently has 17 options markets and
potential new entrants.
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
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
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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).
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. The
Exchange also anticipates that firms that
utilize 10 Gb ports will benefit the most
from the Exchange’s investment in
offering NY6 as the Exchange
anticipates there will be much higher
quantities of 10 Gb physical ports
connecting from NY6 as compared to 1
Gb ports. Indeed, the Exchange notes
that 10 Gb physical ports account for
approximately 90% of physical ports
across the NY4, NY5, and NY6 data
centers, and to date, 80% of new port
connections in NY6 are 10 Gb ports. As
such, the Exchange believes the
proposed fee change for 10 Gbps
physical ports is reasonably and
appropriately allocated.
Gbps physical port) are assessed $22,000 per
month, per port.
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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. Market
participants may voluntarily choose to
become a member of one or more of a
number of different exchanges, of
which, the Exchange is but one choice.
Additionally, any Exchange member
that is dissatisfied with the proposal is
free to choose not to be a member of the
Exchange and send order flow to
another 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 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 19% of the market
share.14 Further, low barriers to entry
mean that new exchanges may rapidly
enter the market and offer additional
substitute platforms to further compete
with the Exchange and the products it
offers. For example, there are 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 any one options exchange
whose membership includes every
registered broker-dealer. By way of
example, while the Exchange has 52
13 Id.
14 See Cboe Global Markets U.S. Options Market
Volume Summary (April 8, 2024), available at
https://markets.cboe.com/us/options/market_
statistics/.
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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
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 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
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.
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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.’’ 19
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.’’ 20 Likewise, the Act
grants the Commission authority to
amend or repeal ‘‘[t]he rules of [an]
exchange [that] impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of this chapter.’’ 21 In short,
the promotion of free and open
competition was a core congressional
objective in creating the national market
system.22 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
19 See H.R. Rep. No. 94–229, at 92 (1975) (Conf.
Rep.) (emphasis added)
20 15 U.S.C. 78f(b)(5).
21 15 U.S.C. 78f(8).
22 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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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). While pricing may be
increased for the larger capacity
physical porfts, 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 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
E:\FR\FM\29APN1.SGM
29APN1
Federal Register / Vol. 89, No. 83 / Monday, April 29, 2024 / Notices
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 23 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
dealers’. . . .’’.24 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.
khammond on DSKJM1Z7X2PROD with NOTICES
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 25 and paragraph (f) of Rule
19b–4 26 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,
23 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
24 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)).
25 15 U.S.C. 78s(b)(3)(A).
26 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
20:54 Apr 26, 2024
Jkt 262001
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–
C2–2024–005 on the subject line.
33411
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
TIME AND DATE:
1:30 p.m. on Thursday,
May 2, 2024.
The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street, NE, Washington, DC 20549.
PLACE:
This meeting will be closed to
the public.
STATUS:
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–C2–2024–005. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–C2–2024–005 and should be
submitted on or before May 20, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–09069 Filed 4–26–24; 8:45 am]
BILLING CODE 8011–01–P
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
In the event that the time, date, or
location of this meeting changes, an
announcement of the change, along with
the new time, date, and/or place of the
meeting will be posted on the
Commission’s website at https://
www.sec.gov.
The General Counsel of the
Commission, or her designee, has
certified that, in her opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matters at the closed meeting.
The subject matter of the closed
meeting will consist of the following
topics:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Resolution of litigation claims; and
Other matters relating to examinations
and enforcement proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting agenda items that
may consist of adjudicatory,
examination, litigation, or regulatory
matters.
CONTACT PERSON FOR MORE INFORMATION:
For further information; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Authority: 5 U.S.C. 552b.
Dated: April 25, 2024.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–09247 Filed 4–25–24; 11:15 am]
27 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00100
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]]>Agencies
[Federal Register Volume 89, Number 83 (Monday, April 29, 2024)]
[Notices]
[Pages 33407-33411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09069]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100012; File No. SR-C2-2024-005]
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
April 23, 2024.
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 April 9, 2024, 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
[[Page 33408]]
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 SR-C2-2023-025. On February 9, 2024, the Exchange
withdrew that filing and submitted SR-C2-2024-004. On April 9, 2024,
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 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 over 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, and in any
event, in this instance the increase is well below the cumulative rate.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
Additionally, the Exchange believes the proposed fee increase is
reasonable in light of recent and anticipated connectivity-related
upgrades and changes. The Exchange and its affiliated exchanges
recently launched a multi-year initiative to improve Cboe Exchange
Platform performance and capacity requirements to increase
competitiveness, support growth and advance a consistent world class
platform. The goal of the project, among other things, is to provide
faster and more consistent order handling and matching performance for
options, while ensuring quicker processing time and supporting
increasing volumes and capacity needs. For example, the Exchange
recently performed switch hardware upgrades. Particularly, the Exchange
replaced existing customer access switches with newer models, which the
Exchange believes resulted in increased determinism. The recent switch
upgrades also increased the Exchange's capacity to accommodate more
physical ports by nearly 50%. Network bandwidth was also increased
nearly two-fold as a result of the upgrades, which among other things,
can lead to reduce message queuing. The Exchange also believes these
newer models result in less natural variance in
[[Page 33409]]
the processing of messages. The Exchange notes that it incurred costs
associated with purchasing and upgrading to these newer models, of
which the Exchange has not otherwise passed through or offset.
As of April 1, 2024, market participants also having the option of
connecting to a new data center (i.e., Secaucus NY6 Data Center
(``NY6'')), in addition to the current data centers at NY4 and NY5. The
Exchange made NY6 available in response to customer requests in
connection with their need for additional space and capacity. In order
to make this space available, the Exchange expended significant
resources to prepare this space, and will also incur ongoing costs with
respect to maintaining this offering, including costs related to power,
space, fiber, cabinets, panels, labor and maintenance of racks. The
Exchange also incurred a large cost with respect to ensuring NY6 would
be latency equalized, as it is for NY4 and NY5.
The Exchange also has made various other improvements since the
current physical port rates were adopted in 2018. For example, the
Exchange has updated its customer portal to provide more transparency
with respect to firms' respective connectivity subscriptions, enabling
them to better monitor, evaluate and adjust their connections based on
their evolving business needs. The Exchange also performs proactive
audits on a weekly basis to ensure that all customer cross connects
continue to fall within allowable tolerances for Latency Equalized
connections. Accordingly, the Exchange expended, and will continue to
expend, resources to innovate and modernize technology so that it may
benefit its Members and continue to compete among other options
markets. The ability to continue to innovate with technology and offer
new products to market participants allows the Exchange to remain
competitive in the options space which currently has 17 options markets
and potential new entrants.
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. The Exchange
also anticipates that firms that utilize 10 Gb ports will benefit the
most from the Exchange's investment in offering NY6 as the Exchange
anticipates there will be much higher quantities of 10 Gb physical
ports connecting from NY6 as compared to 1 Gb ports. Indeed, the
Exchange notes that 10 Gb physical ports account for approximately 90%
of physical ports across the NY4, NY5, and NY6 data centers, and to
date, 80% of new port connections in NY6 are 10 Gb ports. 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. Market participants
may voluntarily choose to become a member of one or more of a number of
different exchanges, of which, the Exchange is but one choice.
Additionally, any Exchange member that is dissatisfied with the
proposal is free to choose not to be a member of the Exchange and send
order flow to another 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 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 19%
of the market share.\14\ Further, low barriers to entry mean that new
exchanges may rapidly enter the market and offer additional substitute
platforms to further compete with the Exchange and the products it
offers. For example, there are 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
(April 8, 2024), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------
As noted above, there is no regulatory requirement that any market
participant connect to any one options exchange, nor that any market
participant connect at a particular connection speed or act in a
particular capacity on the Exchange, or trade any particular product
offered on an exchange. Moreover, membership is not a requirement to
participate on the Exchange. Indeed, the Exchange is unaware of any one
options exchange whose membership includes every registered broker-
dealer. By way of example, while the Exchange has 52
[[Page 33410]]
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.
---------------------------------------------------------------------------
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 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.'' \19\ 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.'' \20\ Likewise, the Act grants the
Commission authority to amend or repeal ``[t]he rules of [an] exchange
[that] impose any burden on competition not necessary or appropriate in
furtherance of the purposes of this chapter.'' \21\ In short, the
promotion of free and open competition was a core congressional
objective in creating the national market system.\22\ 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.
---------------------------------------------------------------------------
\19\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.)
(emphasis added)
\20\ 15 U.S.C. 78f(b)(5).
\21\ 15 U.S.C. 78f(8).
\22\ 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.'').
---------------------------------------------------------------------------
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). While pricing may be increased for the
larger capacity physical porfts, 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
[[Page 33411]]
been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \23\ 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'. . . .''.\24\ 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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\23\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\24\ 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 \25\ and paragraph (f) of Rule 19b-4 \26\
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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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 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-C2-2024-005 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-C2-2024-005. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-C2-2024-005 and should be
submitted on or before May 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-09069 Filed 4-26-24; 8:45 am]
BILLING CODE 8011-01-P
