Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees, 76560-76567 [2024-21171]
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Federal Register / Vol. 89, No. 181 / Wednesday, September 18, 2024 / Notices
to Mary Beth Albaneze, Russell
Investment Management, LLC,
malbaneze@russellinvestments.com.
FOR FURTHER INFORMATION CONTACT:
Trace W. Rakestraw, Senior Special
Counsel, at (202) 551–6825 (Division of
Investment Management, Chief
Counsel’s Office).
SUPPLEMENTARY INFORMATION: For
Applicants’ representations, legal
analysis, and conditions, please refer to
Applicants’ application, dated August 1,
2024, which may be obtained via the
Commission’s website by searching for
the file number at the top of this
document, or for an Applicant using the
Company name search field on the
SEC’s EDGAR system. The SEC’s
EDGAR system may be searched at
https://www.sec.gov/edgar/searchedgar/
legacy/companysearch.html. You may
also call the SEC’s Public Reference
Room at (202) 551–8090.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Vanessa A. Countryman,
Secretary.
BILLING CODE 8011–01–P
[Release No. 34–101015; File No. SR–
CboeBZX–2024–080]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fees Schedule Related to Physical
Port Fees
September 12, 2024.
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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 August
29, 2024, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) 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
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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.
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
1 15
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2024–21266 Filed 9–17–24; 8:45 am]
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX 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/
equities/regulation/rule_filings/BZX/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
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 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
3 The Exchange initially filed the proposed fee
changes on July 3, 2023 (SR–CboeBZX–2023–047).
On September 1, 2023, the Exchange withdrew that
filing and submitted SR–CboeBZX–2023–068. 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’’) in anticipation of a possible U.S.
government shutdown. On September 29, 2023, the
Exchange filed the proposed fee change (SR–
CboeBZX–2023–79). On October 13, 2023, the
Exchange withdrew that filing and submitted SR–
CboeBZX–2023–083. On December 12, 2023 the
Exchange withdrew that filing and submitted SR–
CboeBZX–2023–104. On February 9, 2024, the
Exchange withdrew that filing and submitted SR–
CboeBZX–2024–017. On April 9, 2024, the
Exchange withdrew that filing and submitted this
SR–CboeBZX–2024–028. On April 18, 2024, the
Exchange withdrew that filing and submitted SR–
CboeBZX–2024–030. On June 7, 2024, the Exchange
withdrew that filing and submitted SR–CboeBZX–
2024–052. On August 29, 2024, the Exchange
withdrew that filing and submitted this filing.
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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 Exchange also notes
that a single 10 Gb physical port can be
used to access the Systems of the
following affiliate exchanges: the Cboe
BYX Exchange, Inc., Cboe EDGX
Exchange, Inc. (options and equities
platforms), Cboe EDGA Exchange, Inc.,
and Cboe C2 Exchange, Inc., (‘‘Affiliate
Exchanges’’).5 Notably, only one
monthly fee currently (and will
continue) to apply per 10 Gb physical
port regardless of how many affiliated
exchanges are accessed through that one
port.6
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.7 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 8 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
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 The Exchange notes that conversely, other
exchange groups charge separate port fees for access
to separate, but affiliated, exchanges. See e.g.,
Securities and Exchange Release No. 99822 (March
21, 2024), 89 FR 21337 (March 27, 2024) (SR–
MIAX–2024–016).
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78f(b)(5).
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investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 9 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) 10 of the Act, which
requires that Exchange rules provide for
the equitable allocation of reasonable
dues, fees, and other charges among its
Members and other persons using its
facilities.
The Exchange operates in a highly
competitive environment. On May 21,
2019, the SEC Division of Trading and
Markets issued non-rulemaking fee
filing guidance titled ‘‘Staff Guidance on
SRO Rule Filings Relating to Fees’’
(‘‘Fee Guidance’’), which provided,
among other things, that in determining
whether a proposed fee is constrained
by significant competitive forces, the
Commission will consider whether
there are reasonable substitutes for the
product or service that is the subject of
a proposed fee.11 As described in further
detail below, the Exchange believes
substitutable products 12 are in fact
available to market participants,
including by third-party resellers of the
Exchange’s physical connectivity, and
the availability to trade all of the
products offered at the Exchange at one
of the 18 other options exchanges that
trade options or other off-exchange
trading platforms.
The 2019 Fee Guidance also
acknowledged that platform
competition may demonstrate a
competitive environment and therefore
constrain aggregate returns, regardless of
the pricing of individual products, and
that platforms often have joint
products.13 Exchanges themselves are
platforms.14 Particularly, exchanges are
multi-sided platforms that facilitate
9 Id.
10 15
U.S.C. 78f(b)(4).
Chairman Jay Clayton, Statement on
Division of Trading and Markets Staff Fee
Guidance, June 12, 2019 (‘‘Fee Guidance’’). The Fee
Guidance also recognized that ‘‘products need to be
substantially similar but not identical to be
substitutable.’’
12 A substitute, or substitutable good, in
economics and consumer theory refers to a product
or service that consumers see as essentially the
same or similar-enough to another product. See
https://www.investopedia.com/terms/s/
substitute.asp.
13 See Fee Guidance.
14 The Supreme Court in Ohio v. American
Express Co. recognized that, as platforms facilitate
transactions between two or more sides of a market,
their value is dependent on attracting users to both
sides of the platform (i.e., network effects). See Ohio
v. American Express Co. 138 S. Ct. 2274, 585 U.S.
__ (2018).
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11 See
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interactions between multiple sides of
the market—buyers and sellers,
companies and investors, and traders
and market watchers—and their value is
dependent on attracting users to the
multiple sides of the platform. As
described in further detail below, the
Exchange believes that competition
among exchanges as trading platforms
(and between exchanges and alternative
trading venues) constrain exchanges
from charging excessive fees for any
exchange products, including trading,
listings, connectivity and market data.
As such, fees need not be analyzed from
only one side, but rather can, and
should, be considered within the larger
context of the platform to test for anticompetitive behavior. And indeed,
nothing in the Exchange Act requires
the individual examination of specific
product fees in isolation. Rather, the
Exchange generally requires the rules of
an exchange to provide for the
‘‘equitable allocation of reasonable dues,
fees and other charges among members
and issuers and other persons using its
facilities.’’ 15 The Exchange also notes
that Congress has directed the
Commission to ‘‘rely on ‘competition,
whenever possible, in meeting its
regulatory responsibilities for
overseeing the’’ self-regulatory
organizations (‘‘SROs’’) ‘‘and the
national market system.’ ’’ 16 This is the
basis for the congressional presumption
that exchanges’ pricing decisions are
constrained by competitive forces and
should not be impaired by excessive
regulatory scrutiny or rules. Following
this mandate, the Commission and the
courts have repeatedly expressed their
preference for competition over
regulatory intervention to determine
prices, products, and services in the
securities markets. This notion is further
supported by the Dodd-Frank
amendments authorizing immediately
effective fees, not just for transactional
pricing, but for market data and other
products as well.17 For the reasons
described further below, the Exchange
believes that the Proposal supports
competition, and therefore the proposed
fees are reasonable and equitably
allocated. Indeed, the Exchange believes
the considerable amount of data both
qualitative and quantitative, discussed
below not only meets the Exchange’s
burden demonstrating that the proposed
rule change is consistent with the
15 See
15 U.S.C. 78f(b)(4).
v. SEC, 715 F.3d 342, 534–35
(D.C. Cir. 2013); see also H.R. Rep. No. 94–229 at
92 (1975) (‘‘[I]t is the intent of the conferees that
the national market system evolve through the
interplay of competitive forces as unnecessary
regulatory restrictions are removed.’’).
17 15 U.S.C. 78s(b)(3)(A).
16 NetCoalition
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Exchange but goes beyond the type of
reasoned evidence that the courts and
the Commission have invited exchanges
to submit in support of proposed fee
changes.
The Exchange also believes the
proposed fee change is reasonable as it
reflects a moderate increase in physical
connectivity fees for 10 Gb physical
ports. First, the Exchange believes its
proposal is reasonable as its offering,
even as amended, continues to be more
affordable as compared to similar
offerings at competitor exchanges.18 The
Exchange also notes that the current 10
Gb physical port fee has remained
unchanged since June 2018.19 Since its
last increase over 6 years ago however,
there has been notable inflation and
indeed, the proposed rate is below the
rates of inflation as measured by either
the Consumer Product Index (‘‘CPI’’) 20
or the Producer Price Index (‘‘PPI’’).21
Particularly, under the CPI, the dollar
has had an average inflation rate of
3.8% per year between 2018 and today,
producing a cumulative price increase
of approximately 25% inflation since
the fee for the 10 Gb physical port was
last modified.22 Moreover, a more
specific and pertinent gauge of
inflation—the PPI for data processing,
hosting and related services, active
18 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.
19 See Securities and Exchange Release No. 83429
(June 14, 2018), 83 FR 28685 (June 20, 2018) (SR–
CboeBZX–2018–038).
20 The Consumer Price Index (‘‘CPI’’) is a measure
of the average change over time in the prices paid
by urban consumers for a market basket of
consumer goods and services. The CPI represents
all goods and services purchased for consumption
by the reference population (U or W). The Bureau
of Labor Statistics (‘‘BLS’’) has classified all
expenditure items into more than 200 categories,
arranged into eight major groups (food and
beverages, housing, apparel, transportation, medical
care, recreation, education and communication, and
other goods and services). Included within these
major groups are various government-charged user
fees, such as water and sewerage charges, auto
registration fees, and vehicle tolls. See https://
www.bls.gov/cpi/questions-and-answers.htm.
21 The PPI is a family of indexes that measures
the average change over time in selling prices
received by domestic producers of goods and
services. PPIs measure price change from the
perspective of the seller. This contrasts with other
measures, such as the Consumer Price Index (CPI),
that measure price change from the purchaser’s
perspective. See https://www.bls.gov/ppi/
overview.htm.
22 See https://www.officialdata.org/us/inflation/
2010?amount=1.
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services pages, and other IT
infrastructure provisioning services—
increased approximately 15% from 2018
to 2024.23 Both the CPI and the PPI are
considered ‘‘key data releases, meaning
the monthly indicator is heavily
scrutinized by traders, since they are
used by the Federal Reserve to assess
developments in the economy.’’ 24
Further, the Employment Cost Index
(‘‘ECI’’), which measures the change in
the hourly labor cost to employers over
time, produced a cumulative price
increase of approximately 25%.25
Notwithstanding such significant
inflation, the Exchange has not
increased its connectivity fees during
this time, thereby eroding the value of
the revenue it collects through such
fees.26 The proposed fee represents
approximately 13% increase from the
current fee, which is far below the rate
of inflation as measured by the CPI and
on par with (and even lower than) the
rate of inflation as measured by the PPI
and ECI since 2018. Although the
Exchange believes it would be
reasonable to increase fees by an
amount equal to the full rates of
inflation, however measured, to
reestablish the initial value of the
revenues it earns through its fees, the
Exchange does not propose to do this,
as the Exchange is sensitive to the
sticker shock that would occur if the
Exchange raised its fees by 25%.
Instead, the Exchange proposes a 13%
23 See https://data.bls.gov/timeseries/
PCU5182105182105 (As of August 13, 2024).
Among the industry-specific PPIs is for North
American Industry Classification System (‘‘NAICS’’)
Code 518210: ‘‘Data Processing, Hosting and
Related Services: Hosting, Active Server Pages
(ASP), and Other Information Technology (IT)
Infrastructure Provisioning Services,’’ NAICS index
codes categorize products and services that are
common to particular industries. According to BLS,
these codes ‘‘provide comparability with a wide
assortment of industry-based data for other
economic programs, including productivity,
production, employment, wages, and earnings.’’ See
https://www.bls.gov/ppi/overview.htm. BLS
describes NAICS 51820 as follows: ‘‘The primary
output of NAICS 518210 is the provision of
electronic data processing services. In the broadest
sense, computer services companies help their
customers efficiently use technology. The
processing services market consists of vendors who
use their own computer systems—often utilizing
proprietary software—to process customers’
transactions and data. Companies that offer
processing services collect, organize, and store a
customer’s transactions and other data for recordkeeping purposes.’’
24 See https://www.cmegroup.com/education/
courses/learn-about-key-economic-events/
understandingconsumer-price-index-and-producerprice-index.html.
25 See https://www.bls.gov/eci/tables.html (As of
August 13, 2024).
26 Unregulated competitors providing
connectivity and co-location services often have
annual price increases written into their agreements
with customers to account for inflation and rising
costs.
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increase, an amount that the Exchange
believes to be reasonable on its face as
it is significantly less than various
measures of inflation discussed above.
The Exchange believes further that it
is reasonable to increase its fees to
compensate for inflation because, over
time, inflation has degraded the value of
each dollar that the Exchange collects in
fees, such that the real revenue collected
today is considerably less than that
same revenue collected in 2018. The
impact of this inflationary effect is also
independent of any change in the
Exchange’s costs in providing its goods
and services. The Exchange believes
that it is reasonable for it to offset, in
part, this erosion in the value of the
revenues it collects. Additionally, the
Exchange historically does not increase
fees every year, notwithstanding
inflation. Accordingly, the Exchange
believes the proposed fee of $8,500 is
reasonable as it only represents an
approximate 13% increase from the rate
adopted six years ago, notwithstanding
the cumulative inflation rates noted
above. Were the Exchange to adjust fully
for inflation under the CPI, it would be
proposing a monthly rate of $9,360,
which is 10% more than the Exchange
is actually proposing. To further
demonstrate, the Exchange notes that
$8,500 in 2024 is equivalent to
approximately $6,800 in 2018, when
adjusted for inflation. Accordingly, the
Exchange believes the proposed rate is
also reasonable as it is nearly 20% lower
than the rate adopted in 2018 (i.e.,
$7,500) when adjusted for inflation. 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.
The Exchange also notes Members
and non-Members will continue to
choose the method of connectivity
based on their specific needs and no
broker-dealer is required to become a
Member 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
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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 18 registered options
exchanges that trade options (14 of
which are not affiliated with Cboe),
some of which have similar or lower
connectivity fees.27 Based on publicly
available information, no single options
exchange has more than approximately
18% of the market share.28 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 5 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,
MEMX LLC and most recently MIAX
Sapphire 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 61
members that trade options, Cboe EDGX
has 51 members that trade options, and
Cboe C2 has 52 Trading Permit Holders
(‘‘TPHs’’) (i.e., members). There is also
no firm that is a Member of BZX
Options only. Further, based on
publicly available information regarding
a sample of the Exchange’s competitors,
NYSE American Options has 71
members,29 and NYSE Arca Options has
69 members,30, MIAX Options has 46
27 Id.
28 See Cboe Global Markets U.S. Options Market
Volume Summary (June 6, 2024), available at
https://markets.cboe.com/us/options/market_
statistics/.
29 See https://www.nyse.com/markets/americanoptions/membership#directory.
30 See https://www.nyse.com/markets/arcaoptions/membership#directory.
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members 31 and MIAX Pearl Options has
40 members.32
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-Members 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-Members and
further constrains the price that the
Exchange is able to charge for
connectivity to its Exchange.33 The
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 Members
that connect to the Exchange indirectly
via the third-party).34 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 Members
are able to share a single physical port
(and corresponding bandwidth) with
other non-affiliated Members if
purchased through a third-party reseller.35 This allows resellers to
31 See https://www.miaxglobal.com/sites/default/
files/page-files/MIAX_Options_Exchange_
Members_April_2023_04282023.pdf.
32 See https://www.miaxglobal.com/sites/default/
files/page-files/MIAX_Pearl_Exchange_Members_
01172023_0.pdf.
33 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.
34 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).
35 For example, a third-party reseller may
purchase one 10 Gb physical port from the
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mutualize the costs of the ports for
market participants and provide such
ports at a price that may be lower than
the Exchange charges due to this
mutualized connectivity. These thirdparty sellers may also provide an
additional value to market participants
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
relate to a physical port because such
reseller may be providing a third-party
reseller as it relate 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. For example,
there are approximately 12 third parties
who resell Exchange connectivity across
the 7 Affiliated Exchanges, which are all
accessible on the same network. These
third-party resellers collectively
maintain approximately 48 physical
ports from the Exchange, but have
collectively almost 200 unique
customers downstream, connected
through these multi-Exchange ports.
Therefore, given the availability of
third-party providers that also offer
connectivity solutions, the Exchange
believes participation on the Exchange
Exchange and resell that connectivity to three
different market participants who may only need 3
Gb each and leverage the same single port.
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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.36
Accordingly, 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 14 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 were to assess
supracompetitve rates, members and
non-members 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
36 See e.g., 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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ultimately does not benefit the
Exchange. For example, 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.
Additionally, in connection with a
proposed amendment to the National
Market System Plan Governing the
Consolidated Audit Trail (‘‘CAT NMS
Plan’’) the Commission again discussed
the existence of competition in the
marketplace generally, and particularly
for exchanges with unique business
models.37 The Commission recognized
that while some exchanges may have a
unique business model that is not
currently offered by competitors, a
competitor could create similar business
models if demand were adequate, and if
a competitor did not do so, the
Commission believes it would be likely
that new entrants would do so if the
exchange with that unique business
model was otherwise profitable.38
As noted above, exchanges also
compete as platforms. In the context of
the competition among platforms,
different exchanges operate a variety of
different business models. In fact, there
are a number of ways an exchange can
differentiate itself, such as by pricing
structure, technology and functionality
offerings, and products. As discussed
above, market participants can access
the exchange without purchasing
anything from an exchange, instead
using third-party routers and data. For
those whose business models
necessitate the purchase of some mix of
trading, connectivity, and data services,
there are a variety of options at different
price points, allowing market
participants to exercise choice, and
forcing exchanges to compete on their
offerings and prices. Further, all
elements of the platform—trade
executions, market data, connectivity,
membership, and listings—operate in
37 See Securities Exchange Act Release No. 86901
(September 9, 2019), 84 FR 48458 (September 13,
2019) (File No. S7–13–19).
38 Id.
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concert. For example, trade executions
increase the value of market data;
market data functions as an
advertisement for on-exchange trading;
listings increase the value of trade
executions and market data; and greater
liquidity on the exchange enhances the
value of ports and connectivity services.
As such, demand for one set of platform
services depends on the demand for
other services and therefore to make its
platform attractive to multiple
constituencies, an exchange must
consider inter-side externalities. In
assessing competition for exchange
services, exchanges must also consider
not only explicit costs, such as fees for
trading, market data, and connectivity,
but the implicit costs, such as realized
spreads, of trading on an exchange.
When accounting for explicit and
implicit costs, research has found that
competition has largely equalized all-in
trading costs to users across
exchanges.39 For example, data has
shown that venues with the highest
explicit costs (typically inverted and
fee-fee venues) have the lowest implicit
costs from markouts 40 and vice versa.41
Implicit costs explain how venues with
higher explicit costs manage to compete
with seemingly much cheaper venues
(and conversely, how exchanges with
higher implicit costs use lower fees to
compete).42 Additional research also
confirms that market participants route
trades in a way that not only accounts
for explicit and implicit costs—but also
very efficiently values opportunity
costs, like lower odds of getting a fill on
inverted venues.43 As such, the
Exchange believes the proposed fee
change is reasonable as exchanges are
constrained from charging excessive
fees for any exchange product,
including physical connectivity.
39 Mackintosh, Phil & Normyle, Michael. ‘‘How
Exchanges Compete: An Economic Analysis of
Platform Competition.’’ Nasdaq, March 2024,
https://www.nasdaq.com/How-Exchanges-CompeteAn-Economic-Analysis-of-Platform-Competition.
40 Per-trade markout is a measure of theoretical
profitability from the perspective of a liquidity
provider.
41 Mackintosh, Phil & Normyle, Michael. ‘‘How
Exchanges Compete: An Economic Analysis of
Platform Competition.’’ Nasdaq, March 2024,
https://www.nasdaq.com/How-Exchanges-CompeteAn-Economic-Analysis-of-Platform-Competition.
42 See id. For example, research by Nasdaq found
that it is over 60% more expensive to trade on the
costliest exchange than on the cheapest. As Nasdaq
noted, such a sizeable disparity suggests that there
is another factor that keeps these exchanges in
competition. Specifically, when implicit costs are
considered, the difference in cost to trade is
minimized.
43 Bershova, Nataliya & Jaquet, Paul. (2019).
Execution Quality and Fee Structure: Passive Lit
Executions. Bernstein Electronic Trading, Execution
Research.
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The Exchange also 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
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.
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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 18 options markets and
potential new entrants. If the Exchange
were not able to assess incrementally
higher fees for its connectivity, it would
effectively impact how the Exchange
manages its technology and hamper the
Exchange’s ability to continue to invest
in and fund access services in a manner
that allows it to meet existing and
anticipated access demands of market
participants. Disapproval of fee changes
such as the proposal herein, could also
have the adverse effect of discouraging
an exchange from improving its
operations and implementing
innovative technology to the benefit of
market participants if it believes the
Commission would later prevent that
exchange from recouping costs and
monetizing its operational
enhancements, thus adversely
impacting competition as well as the
interests of market participants and
investors.
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.44 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, Members
are able to utilize a single port to
connect to all of its Affiliate Exchanges
and will only be charged one single fee
(i.e., a market participant will only be
44 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.
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assessed the proposed $8,500 even if it
uses that physical port to connect to the
Exchange and another (or even all 6) of
its Affiliate Exchanges. Particularly, the
Exchange believes the proposed
monthly per port fee is reasonable,
equitable and not unfairly
discriminatory since as the Exchange
has determined to not 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 Gb physical ports and
charging a higher fee as compared to the
1 Gb physical port is equitable as the 1
Gb physical port is 1/10th the size of the
10 Gb 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
Gb alternative is lower than the value of
the 10 Gb alternative, when measured
based on the type of Exchange access it
offers. Moreover, market participants
that purchase 10 Gb 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 Gb
physical ports is reasonably and
appropriately allocated.
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, the Exchange
notes that it did not raise any arguments
relating to its profitability nor is it
required to do so in order to
demonstrate that its fees are reasonable
and consistent with the Act. 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. In fact, the
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76565
Exchange has represented to the
Commission on numerous occasions
that the type of data relating to profit
margins and return on assets that the
Commission is effectively mandating of
all exchanges is not feasible for the
Exchange, as its costs are not kept in the
disaggregated manner necessary for
such an analysis. Notwithstanding this
fact, the Exchange has recently
undertaken the exercise of reviewing its
costs and expenses relating to
connectivity to explore further costrelated justifications in an effort to
address to the best of its ability the
Commission’s request for such
information. The Exchange represents
that it again was not able to do so in the
manner expected by the Commission.
Furthermore, in setting fees for its
physical connectivity, including this
current proposed fee change, the
Exchange did not perform the type of
cost-analysis that the Commission is
demanding (consistent with its inability
to do so based on how it aggregates its
costs and revenue). The Exchange
instead considers, as it did here, various
factors in setting fees, including the
current competitive landscape, the rates
historically paid by market participants
for connectivity and the potential
impact on market participants to ensure
that the proposed fees would not create
an undue financial burden on any
market participants, including smaller
market participants.45
The Exchange reiterates 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.’’ 46 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
45 Regarding market participant impact, it is
notable that since the proposed fee change was first
implemented over 14 months ago, the Exchange
received no comments from any individual Member
suggesting that it was unduly burdened by the
proposed changes described herein,
notwithstanding the opportunity to do so on several
occasions during multiple comment periods. The
only comment letters the Exchange did receive were
all submitted by the same industry participant
notorious for submitting comments opposing any
and all market data and connectivity fee filings and
equally notorious for the factual inaccuracies and
conclusory statements contained therein.
46 See H.R. Rep. No. 94–229, at 92 (1975) (Conf.
Rep.) (emphasis added).
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system, and, in general, to protect
investors and the public interest.’’ 47
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.’’ 48 In short,
the promotion of free and open
competition was a core congressional
objective in creating the national market
system.49 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. Indeed, the Exchange
believes that classification of costs
could likely not be done without ongoing debate over formulas for
allocation, 50 continual auditing, and
considerable expense. The Exchange
also believes cost-based analysis could
create disincentives to reduce costs
47 15
U.S.C. 78f(b)(5).
U.S.C. 78f(8).
49 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.’’).
50 See e.g., letter from Brian Sopinsky, General
Counsel, Susquehanna International Group, LLP
(‘‘SIG’’), to Vanessa Countryman, Secretary,
Commission, dated February 7, 2023, letters from
Gerald D. O’Connell, SIG, to Vanessa Countryman,
Secretary, Commission, dated March 21, 2023, May
24, 2023, July 24, 2023 and September 18, 2023,
and letters from John C. Pickford, SIG, to Vanessa
Countryman, Secretary, Commission, dated January
4, 2024, and March 1, 2024 and letters from Thomas
M. Merritt, Deputy General Counsel, Virtu
Financial, Inc. (‘‘Virtu’’), to Vanessa Countryman,
Secretary, Commission, dated November 8, 2023
and January 2, 2024. See also Securities Exchange
Act Release No. 93883 (December 30, 2021), 87 FR
523 (January 5, 2022) (SR–IEX–2021–14)
(Suspension of and Order Instituting Proceedings
To Determine Whether To Approve or Disapprove
a Proposed Rule Change To Amend Its Fee
Schedule for Market Data Fees) and Securities
Exchange Act Release No. 94888 (May 11, 2022), 87
FR 29892 (May 17, 2022) (SR–PEARL–2022–18)
(Notice of Filing of a Proposed Rule Change To
Amend the MIAX PEARL Options Fee Schedule To
Increase Certain Connectivity Fees and To Increase
the Monthly Fees for MIAX Express Network Full
Service Port; Suspension of and Order Instituting
Proceedings To Determine Whether To Approve or
Disapprove the Proposed Rule Change).
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through efficient operation or
innovation. Moreover, the industry
could experience frequent rate increases
based on escalating expense levels.
Additionally, the manner in which one
exchange defends its pricing should not
be deemed unreasonable simply because
it differs from the choices made by other
exchanges (e.g., using a cost-based
analysis versus discussion on
competitive forces). The Exchange lastly
cautions that as disputes arise regarding
the appropriate measure and calculation
of relevant costs and allocation of
common costs, the Commission could
find itself engaging in the kind of rigid
ratemaking not contemplated by Section
11A of the Exchange Act and which the
Commission has historically sought to
avoid.
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 Members
equally (i.e., all market participants that
choose to purchase the 10 Gb 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 Gb physical port (which cost is not
changing) or may choose to obtain
access via a third-party re-seller. While
pricing may be increased for the larger
capacity physical ports, such options
provide far more capacity and are
purchased by those that consume more
resources from the network.
Accordingly, the proposed connectivity
fees do not favor certain categories of
market participants in a manner that
would impose a burden on competition;
rather, the allocation reflects the
network resources consumed by the
various size of market participants—
lowest bandwidth consuming members
pay the least, and highest bandwidth
consuming members pays the most.
The Exchange’s proposed fee is also
still lower than some fees for similar
connectivity on other exchanges and
therefore may stimulate intermarket
competition by attracting additional
firms to connect to the Exchange or at
least should not deter interested
participants from connecting directly to
the Exchange. Further, if the changes
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proposed herein are unattractive to
market participants, the Exchange can,
and likely will, see a decline in
connectivity via 10 Gb 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.’’ 51 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’. . . .’’.52 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.
51 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
52 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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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 53 and paragraph (f) of Rule
19b–4 54 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:
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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–
CboeBZX–2024–080 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CboeBZX–2024–080. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeBZX–2024–080 and should be
submitted on or before October 9, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–21171 Filed 9–17–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101013; File No. SR–C2–
2024–015]
Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Fees
Schedule Related to Physical Port
Fees
September 12, 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 August
29, 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.
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/
55 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
53 15
U.S.C. 78s(b)(3)(A).
54 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
17:11 Sep 17, 2024
1 15
Jkt 262001
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
76567
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
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 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,
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’’) in anticipation of a possible U.S.
government shutdown. ’’). 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
SR–C2–2024–005. On June 7, 2024 the Exchange
withdrew that filing and submitted SR–C2–2024–
010. On August 29, 2024, the Exchange withdrew
that filing and submitted this filing.
E:\FR\FM\18SEN1.SGM
18SEN1
]]>Agencies
[Federal Register Volume 89, Number 181 (Wednesday, September 18, 2024)]
[Notices]
[Pages 76560-76567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21171]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101015; File No. SR-CboeBZX-2024-080]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule Related to Physical Port Fees
September 12, 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 August 29, 2024, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX 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/equities/regulation/rule_filings/BZX/), 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-CboeBZX-2023-047). On September 1, 2023, the
Exchange withdrew that filing and submitted SR-CboeBZX-2023-068. 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'') in anticipation
of a possible U.S. government shutdown. On September 29, 2023, the
Exchange filed the proposed fee change (SR-CboeBZX-2023-79). On
October 13, 2023, the Exchange withdrew that filing and submitted
SR-CboeBZX-2023-083. On December 12, 2023 the Exchange withdrew that
filing and submitted SR-CboeBZX-2023-104. On February 9, 2024, the
Exchange withdrew that filing and submitted SR-CboeBZX-2024-017. On
April 9, 2024, the Exchange withdrew that filing and submitted this
SR-CboeBZX-2024-028. On April 18, 2024, the Exchange withdrew that
filing and submitted SR-CboeBZX-2024-030. On June 7, 2024, the
Exchange withdrew that filing and submitted SR-CboeBZX-2024-052. On
August 29, 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 Members and non-Members 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
Exchange also notes that a single 10 Gb physical port can be used to
access the Systems of the following affiliate exchanges: the Cboe BYX
Exchange, Inc., Cboe EDGX Exchange, Inc. (options and equities
platforms), Cboe EDGA Exchange, Inc., and Cboe C2 Exchange, Inc.,
(``Affiliate Exchanges'').\5\ Notably, only one monthly fee currently
(and will continue) to apply per 10 Gb physical port regardless of how
many affiliated exchanges are accessed through that one port.\6\
---------------------------------------------------------------------------
\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\ The Exchange notes that conversely, other exchange groups
charge separate port fees for access to separate, but affiliated,
exchanges. See e.g., Securities and Exchange Release No. 99822
(March 21, 2024), 89 FR 21337 (March 27, 2024) (SR-MIAX-2024-016).
---------------------------------------------------------------------------
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.\7\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ 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
[[Page 76561]]
investors and the public interest. Additionally, the Exchange believes
the proposed rule change is consistent with the Section 6(b)(5) \9\
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) \10\ of the Act, which requires that Exchange rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its Members and other persons using its facilities.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ Id.
\10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange operates in a highly competitive environment. On May
21, 2019, the SEC Division of Trading and Markets issued non-rulemaking
fee filing guidance titled ``Staff Guidance on SRO Rule Filings
Relating to Fees'' (``Fee Guidance''), which provided, among other
things, that in determining whether a proposed fee is constrained by
significant competitive forces, the Commission will consider whether
there are reasonable substitutes for the product or service that is the
subject of a proposed fee.\11\ As described in further detail below,
the Exchange believes substitutable products \12\ are in fact available
to market participants, including by third-party resellers of the
Exchange's physical connectivity, and the availability to trade all of
the products offered at the Exchange at one of the 18 other options
exchanges that trade options or other off-exchange trading platforms.
---------------------------------------------------------------------------
\11\ See Chairman Jay Clayton, Statement on Division of Trading
and Markets Staff Fee Guidance, June 12, 2019 (``Fee Guidance'').
The Fee Guidance also recognized that ``products need to be
substantially similar but not identical to be substitutable.''
\12\ A substitute, or substitutable good, in economics and
consumer theory refers to a product or service that consumers see as
essentially the same or similar-enough to another product. See
https://www.investopedia.com/terms/s/substitute.asp.
---------------------------------------------------------------------------
The 2019 Fee Guidance also acknowledged that platform competition
may demonstrate a competitive environment and therefore constrain
aggregate returns, regardless of the pricing of individual products,
and that platforms often have joint products.\13\ Exchanges themselves
are platforms.\14\ Particularly, exchanges are multi-sided platforms
that facilitate interactions between multiple sides of the market--
buyers and sellers, companies and investors, and traders and market
watchers--and their value is dependent on attracting users to the
multiple sides of the platform. As described in further detail below,
the Exchange believes that competition among exchanges as trading
platforms (and between exchanges and alternative trading venues)
constrain exchanges from charging excessive fees for any exchange
products, including trading, listings, connectivity and market data. As
such, fees need not be analyzed from only one side, but rather can, and
should, be considered within the larger context of the platform to test
for anti-competitive behavior. And indeed, nothing in the Exchange Act
requires the individual examination of specific product fees in
isolation. Rather, the Exchange generally requires the rules of an
exchange to provide for the ``equitable allocation of reasonable dues,
fees and other charges among members and issuers and other persons
using its facilities.'' \15\ The Exchange also notes that Congress has
directed the Commission to ``rely on `competition, whenever possible,
in meeting its regulatory responsibilities for overseeing the'' self-
regulatory organizations (``SROs'') ``and the national market system.'
'' \16\ This is the basis for the congressional presumption that
exchanges' pricing decisions are constrained by competitive forces and
should not be impaired by excessive regulatory scrutiny or rules.
Following this mandate, the Commission and the courts have repeatedly
expressed their preference for competition over regulatory intervention
to determine prices, products, and services in the securities markets.
This notion is further supported by the Dodd-Frank amendments
authorizing immediately effective fees, not just for transactional
pricing, but for market data and other products as well.\17\ For the
reasons described further below, the Exchange believes that the
Proposal supports competition, and therefore the proposed fees are
reasonable and equitably allocated. Indeed, the Exchange believes the
considerable amount of data both qualitative and quantitative,
discussed below not only meets the Exchange's burden demonstrating that
the proposed rule change is consistent with the Exchange but goes
beyond the type of reasoned evidence that the courts and the Commission
have invited exchanges to submit in support of proposed fee changes.
---------------------------------------------------------------------------
\13\ See Fee Guidance.
\14\ The Supreme Court in Ohio v. American Express Co.
recognized that, as platforms facilitate transactions between two or
more sides of a market, their value is dependent on attracting users
to both sides of the platform (i.e., network effects). See Ohio v.
American Express Co. 138 S. Ct. 2274, 585 U.S. __ (2018).
\15\ See 15 U.S.C. 78f(b)(4).
\16\ NetCoalition v. SEC, 715 F.3d 342, 534-35 (D.C. Cir. 2013);
see also H.R. Rep. No. 94-229 at 92 (1975) (``[I]t is the intent of
the conferees that the national market system evolve through the
interplay of competitive forces as unnecessary regulatory
restrictions are removed.'').
\17\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------
The Exchange also believes the proposed fee change is reasonable as
it reflects a moderate increase in physical connectivity fees for 10 Gb
physical ports. First, the Exchange believes its proposal is reasonable
as its offering, even as amended, continues to be more affordable as
compared to similar offerings at competitor exchanges.\18\ The Exchange
also notes that the current 10 Gb physical port fee has remained
unchanged since June 2018.\19\ Since its last increase over 6 years ago
however, there has been notable inflation and indeed, the proposed rate
is below the rates of inflation as measured by either the Consumer
Product Index (``CPI'') \20\ or the Producer Price Index (``PPI'').\21\
Particularly, under the CPI, the dollar has had an average inflation
rate of 3.8% per year between 2018 and today, producing a cumulative
price increase of approximately 25% inflation since the fee for the 10
Gb physical port was last modified.\22\ Moreover, a more specific and
pertinent gauge of inflation--the PPI for data processing, hosting and
related services, active
[[Page 76562]]
services pages, and other IT infrastructure provisioning services--
increased approximately 15% from 2018 to 2024.\23\ Both the CPI and the
PPI are considered ``key data releases, meaning the monthly indicator
is heavily scrutinized by traders, since they are used by the Federal
Reserve to assess developments in the economy.'' \24\ Further, the
Employment Cost Index (``ECI''), which measures the change in the
hourly labor cost to employers over time, produced a cumulative price
increase of approximately 25%.\25\ Notwithstanding such significant
inflation, the Exchange has not increased its connectivity fees during
this time, thereby eroding the value of the revenue it collects through
such fees.\26\ The proposed fee represents approximately 13% increase
from the current fee, which is far below the rate of inflation as
measured by the CPI and on par with (and even lower than) the rate of
inflation as measured by the PPI and ECI since 2018. Although the
Exchange believes it would be reasonable to increase fees by an amount
equal to the full rates of inflation, however measured, to reestablish
the initial value of the revenues it earns through its fees, the
Exchange does not propose to do this, as the Exchange is sensitive to
the sticker shock that would occur if the Exchange raised its fees by
25%. Instead, the Exchange proposes a 13% increase, an amount that the
Exchange believes to be reasonable on its face as it is significantly
less than various measures of inflation discussed above.
---------------------------------------------------------------------------
\18\ 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.
\19\ See Securities and Exchange Release No. 83429 (June 14,
2018), 83 FR 28685 (June 20, 2018) (SR-CboeBZX-2018-038).
\20\ The Consumer Price Index (``CPI'') is a measure of the
average change over time in the prices paid by urban consumers for a
market basket of consumer goods and services. The CPI represents all
goods and services purchased for consumption by the reference
population (U or W). The Bureau of Labor Statistics (``BLS'') has
classified all expenditure items into more than 200 categories,
arranged into eight major groups (food and beverages, housing,
apparel, transportation, medical care, recreation, education and
communication, and other goods and services). Included within these
major groups are various government-charged user fees, such as water
and sewerage charges, auto registration fees, and vehicle tolls. See
https://www.bls.gov/cpi/questions-and-answers.htm.
\21\ The PPI is a family of indexes that measures the average
change over time in selling prices received by domestic producers of
goods and services. PPIs measure price change from the perspective
of the seller. This contrasts with other measures, such as the
Consumer Price Index (CPI), that measure price change from the
purchaser's perspective. See https://www.bls.gov/ppi/overview.htm.
\22\ See https://www.officialdata.org/us/inflation/2010?amount=1.
\23\ See https://data.bls.gov/timeseries/PCU5182105182105 (As of
August 13, 2024). Among the industry-specific PPIs is for North
American Industry Classification System (``NAICS'') Code 518210:
``Data Processing, Hosting and Related Services: Hosting, Active
Server Pages (ASP), and Other Information Technology (IT)
Infrastructure Provisioning Services,'' NAICS index codes categorize
products and services that are common to particular industries.
According to BLS, these codes ``provide comparability with a wide
assortment of industry-based data for other economic programs,
including productivity, production, employment, wages, and
earnings.'' See https://www.bls.gov/ppi/overview.htm. BLS describes
NAICS 51820 as follows: ``The primary output of NAICS 518210 is the
provision of electronic data processing services. In the broadest
sense, computer services companies help their customers efficiently
use technology. The processing services market consists of vendors
who use their own computer systems--often utilizing proprietary
software--to process customers' transactions and data. Companies
that offer processing services collect, organize, and store a
customer's transactions and other data for record-keeping
purposes.''
\24\ See https://www.cmegroup.com/education/courses/learn-about-key-economic-events/understandingconsumer-price-index-and-producer-price-index.html.
\25\ See https://www.bls.gov/eci/tables.html (As of August 13,
2024).
\26\ Unregulated competitors providing connectivity and co-
location services often have annual price increases written into
their agreements with customers to account for inflation and rising
costs.
---------------------------------------------------------------------------
The Exchange believes further that it is reasonable to increase its
fees to compensate for inflation because, over time, inflation has
degraded the value of each dollar that the Exchange collects in fees,
such that the real revenue collected today is considerably less than
that same revenue collected in 2018. The impact of this inflationary
effect is also independent of any change in the Exchange's costs in
providing its goods and services. The Exchange believes that it is
reasonable for it to offset, in part, this erosion in the value of the
revenues it collects. Additionally, the Exchange historically does not
increase fees every year, notwithstanding inflation. Accordingly, the
Exchange believes the proposed fee of $8,500 is reasonable as it only
represents an approximate 13% increase from the rate adopted six years
ago, notwithstanding the cumulative inflation rates noted above. Were
the Exchange to adjust fully for inflation under the CPI, it would be
proposing a monthly rate of $9,360, which is 10% more than the Exchange
is actually proposing. To further demonstrate, the Exchange notes that
$8,500 in 2024 is equivalent to approximately $6,800 in 2018, when
adjusted for inflation. Accordingly, the Exchange believes the proposed
rate is also reasonable as it is nearly 20% lower than the rate adopted
in 2018 (i.e., $7,500) when adjusted for inflation. 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.
The Exchange also notes Members and non-Members will continue to
choose the method of connectivity based on their specific needs and no
broker-dealer is required to become a Member 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,
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 18 registered options exchanges
that trade options (14 of which are not affiliated with Cboe), some of
which have similar or lower connectivity fees.\27\ Based on publicly
available information, no single options exchange has more than
approximately 18% of the market share.\28\ 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 5 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, MEMX LLC and most
recently MIAX Sapphire LLC).
---------------------------------------------------------------------------
\27\ Id.
\28\ See Cboe Global Markets U.S. Options Market Volume Summary
(June 6, 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 61 members that trade
options, Cboe EDGX has 51 members that trade options, and Cboe C2 has
52 Trading Permit Holders (``TPHs'') (i.e., members). There is also no
firm that is a Member of BZX Options only. Further, based on publicly
available information regarding a sample of the Exchange's competitors,
NYSE American Options has 71 members,\29\ and NYSE Arca Options has 69
members,\30\, MIAX Options has 46
[[Page 76563]]
members \31\ and MIAX Pearl Options has 40 members.\32\
---------------------------------------------------------------------------
\29\ See https://www.nyse.com/markets/american-options/membership#directory.
\30\ See https://www.nyse.com/markets/arca-options/membership#directory.
\31\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf.
\32\ 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-Members 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-Members and further constrains
the price that the Exchange is able to charge for connectivity to its
Exchange.\33\ The 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 Members that connect to the Exchange indirectly via
the third-party).\34\ 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 Members are able to share a single physical port (and
corresponding bandwidth) with other non-affiliated Members if purchased
through a third-party re-seller.\35\ 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 relate to a physical port because such reseller may be
providing a third-party reseller as it relate 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. For example, there are approximately
12 third parties who resell Exchange connectivity across the 7
Affiliated Exchanges, which are all accessible on the same network.
These third-party resellers collectively maintain approximately 48
physical ports from the Exchange, but have collectively almost 200
unique customers downstream, connected through these multi-Exchange
ports. 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.\36\
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\33\ 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.
\34\ 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).
\35\ For example, a third-party reseller may purchase one 10 Gb
physical port from the Exchange and resell that connectivity to
three different market participants who may only need 3 Gb each and
leverage the same single port.
\36\ See e.g., 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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Accordingly, 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 14 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 were to assess
supracompetitve rates, members and non-members 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
[[Page 76564]]
ultimately does not benefit the Exchange. For example, 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.
Additionally, in connection with a proposed amendment to the
National Market System Plan Governing the Consolidated Audit Trail
(``CAT NMS Plan'') the Commission again discussed the existence of
competition in the marketplace generally, and particularly for
exchanges with unique business models.\37\ The Commission recognized
that while some exchanges may have a unique business model that is not
currently offered by competitors, a competitor could create similar
business models if demand were adequate, and if a competitor did not do
so, the Commission believes it would be likely that new entrants would
do so if the exchange with that unique business model was otherwise
profitable.\38\
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\37\ See Securities Exchange Act Release No. 86901 (September 9,
2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
\38\ Id.
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As noted above, exchanges also compete as platforms. In the context
of the competition among platforms, different exchanges operate a
variety of different business models. In fact, there are a number of
ways an exchange can differentiate itself, such as by pricing
structure, technology and functionality offerings, and products. As
discussed above, market participants can access the exchange without
purchasing anything from an exchange, instead using third-party routers
and data. For those whose business models necessitate the purchase of
some mix of trading, connectivity, and data services, there are a
variety of options at different price points, allowing market
participants to exercise choice, and forcing exchanges to compete on
their offerings and prices. Further, all elements of the platform--
trade executions, market data, connectivity, membership, and listings--
operate in concert. For example, trade executions increase the value of
market data; market data functions as an advertisement for on-exchange
trading; listings increase the value of trade executions and market
data; and greater liquidity on the exchange enhances the value of ports
and connectivity services. As such, demand for one set of platform
services depends on the demand for other services and therefore to make
its platform attractive to multiple constituencies, an exchange must
consider inter-side externalities. In assessing competition for
exchange services, exchanges must also consider not only explicit
costs, such as fees for trading, market data, and connectivity, but the
implicit costs, such as realized spreads, of trading on an exchange.
When accounting for explicit and implicit costs, research has found
that competition has largely equalized all-in trading costs to users
across exchanges.\39\ For example, data has shown that venues with the
highest explicit costs (typically inverted and fee-fee venues) have the
lowest implicit costs from markouts \40\ and vice versa.\41\ Implicit
costs explain how venues with higher explicit costs manage to compete
with seemingly much cheaper venues (and conversely, how exchanges with
higher implicit costs use lower fees to compete).\42\ Additional
research also confirms that market participants route trades in a way
that not only accounts for explicit and implicit costs--but also very
efficiently values opportunity costs, like lower odds of getting a fill
on inverted venues.\43\ As such, the Exchange believes the proposed fee
change is reasonable as exchanges are constrained from charging
excessive fees for any exchange product, including physical
connectivity.
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\39\ Mackintosh, Phil & Normyle, Michael. ``How Exchanges
Compete: An Economic Analysis of Platform Competition.'' Nasdaq,
March 2024, https://www.nasdaq.com/How-Exchanges-Compete-An-Economic-Analysis-of-Platform-Competition.
\40\ Per-trade markout is a measure of theoretical profitability
from the perspective of a liquidity provider.
\41\ Mackintosh, Phil & Normyle, Michael. ``How Exchanges
Compete: An Economic Analysis of Platform Competition.'' Nasdaq,
March 2024, https://www.nasdaq.com/How-Exchanges-Compete-An-Economic-Analysis-of-Platform-Competition.
\42\ See id. For example, research by Nasdaq found that it is
over 60% more expensive to trade on the costliest exchange than on
the cheapest. As Nasdaq noted, such a sizeable disparity suggests
that there is another factor that keeps these exchanges in
competition. Specifically, when implicit costs are considered, the
difference in cost to trade is minimized.
\43\ Bershova, Nataliya & Jaquet, Paul. (2019). Execution
Quality and Fee Structure: Passive Lit Executions. Bernstein
Electronic Trading, Execution Research.
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The Exchange also 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 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.
[[Page 76565]]
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 18 options markets and potential new entrants. If the
Exchange were not able to assess incrementally higher fees for its
connectivity, it would effectively impact how the Exchange manages its
technology and hamper the Exchange's ability to continue to invest in
and fund access services in a manner that allows it to meet existing
and anticipated access demands of market participants. Disapproval of
fee changes such as the proposal herein, could also have the adverse
effect of discouraging an exchange from improving its operations and
implementing innovative technology to the benefit of market
participants if it believes the Commission would later prevent that
exchange from recouping costs and monetizing its operational
enhancements, thus adversely impacting competition as well as the
interests of market participants and investors.
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.\44\ 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, Members are able
to utilize a single port to connect to all of its Affiliate Exchanges
and will only be charged one single fee (i.e., a market participant
will only be assessed the proposed $8,500 even if it uses that physical
port to connect to the Exchange and another (or even all 6) of its
Affiliate Exchanges. Particularly, the Exchange believes the proposed
monthly per port fee is reasonable, equitable and not unfairly
discriminatory since as the Exchange has determined to not charge
multiple fees for the same port. Indeed, the Exchange notes that
several ports are in fact purchased and utilized across one or more of
the Exchange's affiliated Exchanges (and charged only once).
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\44\ 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.
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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 Gb physical ports and charging a
higher fee as compared to the 1 Gb physical port is equitable as the 1
Gb physical port is 1/10th the size of the 10 Gb 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 Gb alternative is lower than the
value of the 10 Gb alternative, when measured based on the type of
Exchange access it offers. Moreover, market participants that purchase
10 Gb 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 Gb physical ports is reasonably and
appropriately allocated.
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, the
Exchange notes that it did not raise any arguments relating to its
profitability nor is it required to do so in order to demonstrate that
its fees are reasonable and consistent with the Act. 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. In fact, the Exchange has represented to
the Commission on numerous occasions that the type of data relating to
profit margins and return on assets that the Commission is effectively
mandating of all exchanges is not feasible for the Exchange, as its
costs are not kept in the disaggregated manner necessary for such an
analysis. Notwithstanding this fact, the Exchange has recently
undertaken the exercise of reviewing its costs and expenses relating to
connectivity to explore further cost-related justifications in an
effort to address to the best of its ability the Commission's request
for such information. The Exchange represents that it again was not
able to do so in the manner expected by the Commission. Furthermore, in
setting fees for its physical connectivity, including this current
proposed fee change, the Exchange did not perform the type of cost-
analysis that the Commission is demanding (consistent with its
inability to do so based on how it aggregates its costs and revenue).
The Exchange instead considers, as it did here, various factors in
setting fees, including the current competitive landscape, the rates
historically paid by market participants for connectivity and the
potential impact on market participants to ensure that the proposed
fees would not create an undue financial burden on any market
participants, including smaller market participants.\45\
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\45\ Regarding market participant impact, it is notable that
since the proposed fee change was first implemented over 14 months
ago, the Exchange received no comments from any individual Member
suggesting that it was unduly burdened by the proposed changes
described herein, notwithstanding the opportunity to do so on
several occasions during multiple comment periods. The only comment
letters the Exchange did receive were all submitted by the same
industry participant notorious for submitting comments opposing any
and all market data and connectivity fee filings and equally
notorious for the factual inaccuracies and conclusory statements
contained therein.
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The Exchange reiterates 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.'' \46\ 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
[[Page 76566]]
system, and, in general, to protect investors and the public
interest.'' \47\ 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.'' \48\ In short, the promotion of free and
open competition was a core congressional objective in creating the
national market system.\49\ 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. Indeed, the Exchange believes that classification of costs
could likely not be done without on-going debate over formulas for
allocation,\50\ continual auditing, and considerable expense. The
Exchange also believes cost-based analysis could create disincentives
to reduce costs through efficient operation or innovation. Moreover,
the industry could experience frequent rate increases based on
escalating expense levels. Additionally, the manner in which one
exchange defends its pricing should not be deemed unreasonable simply
because it differs from the choices made by other exchanges (e.g.,
using a cost-based analysis versus discussion on competitive forces).
The Exchange lastly cautions that as disputes arise regarding the
appropriate measure and calculation of relevant costs and allocation of
common costs, the Commission could find itself engaging in the kind of
rigid ratemaking not contemplated by Section 11A of the Exchange Act
and which the Commission has historically sought to avoid.
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\46\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.)
(emphasis added).
\47\ 15 U.S.C. 78f(b)(5).
\48\ 15 U.S.C. 78f(8).
\49\ 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.'').
\50\ See e.g., letter from Brian Sopinsky, General Counsel,
Susquehanna International Group, LLP (``SIG''), to Vanessa
Countryman, Secretary, Commission, dated February 7, 2023, letters
from Gerald D. O'Connell, SIG, to Vanessa Countryman, Secretary,
Commission, dated March 21, 2023, May 24, 2023, July 24, 2023 and
September 18, 2023, and letters from John C. Pickford, SIG, to
Vanessa Countryman, Secretary, Commission, dated January 4, 2024,
and March 1, 2024 and letters from Thomas M. Merritt, Deputy General
Counsel, Virtu Financial, Inc. (``Virtu''), to Vanessa Countryman,
Secretary, Commission, dated November 8, 2023 and January 2, 2024.
See also Securities Exchange Act Release No. 93883 (December 30,
2021), 87 FR 523 (January 5, 2022) (SR-IEX-2021-14) (Suspension of
and Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change To Amend Its Fee Schedule for
Market Data Fees) and Securities Exchange Act Release No. 94888 (May
11, 2022), 87 FR 29892 (May 17, 2022) (SR-PEARL-2022-18) (Notice of
Filing of a Proposed Rule Change To Amend the MIAX PEARL Options Fee
Schedule To Increase Certain Connectivity Fees and To Increase the
Monthly Fees for MIAX Express Network Full Service Port; Suspension
of and Order Instituting Proceedings To Determine Whether To Approve
or Disapprove the Proposed Rule Change).
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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 Members equally (i.e., all market participants that
choose to purchase the 10 Gb 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 Gb physical port (which cost is
not changing) or may choose to obtain access via a third-party re-
seller. While pricing may be increased for the larger capacity physical
ports, such options provide far more capacity and are purchased by
those that consume more resources from the network. Accordingly, the
proposed connectivity fees do not favor certain categories of market
participants in a manner that would impose a burden on competition;
rather, the allocation reflects the network resources consumed by the
various size of market participants--lowest bandwidth consuming members
pay the least, and highest bandwidth consuming members pays the most.
The Exchange's proposed fee is also still lower than some fees for
similar connectivity on other exchanges and therefore may stimulate
intermarket competition by attracting additional firms to connect to
the Exchange or at least should not deter interested participants from
connecting directly to the Exchange. Further, if the changes proposed
herein are unattractive to market participants, the Exchange can, and
likely will, see a decline in connectivity via 10 Gb 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.'' \51\ 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'. . . .''.\52\ 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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\51\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\52\ 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.
[[Page 76567]]
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 \53\ and paragraph (f) of Rule 19b-4 \54\
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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\53\ 15 U.S.C. 78s(b)(3)(A).
\54\ 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-CboeBZX-2024-080 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2024-080. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2024-080 and should
be submitted on or before October 9, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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\55\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21171 Filed 9-17-24; 8:45 am]
BILLING CODE 8011-01-P
