[Federal Register Volume 83, Number 119 (Wednesday, June 20, 2018)]
[Notices]
[Pages 28685-28687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13159]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83429; File No. SR-CboeBZX-2018-038]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Physical Port Fees for BZX Options

June 14, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 28686]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 1, 2018, Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') 
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 Exchange has designated 
the proposed rule change as one establishing or changing a member due, 
fee, or other charge imposed by the Exchange under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the proposed rule change effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend its fees and rebates 
applicable to Members \5\ and non-Members of the Exchange pursuant to 
BZX Rule 15.1(a) and (c) to modify its fees for physical ports.
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to implement proposed changes to its fee 
schedule for its equity options platform (``BZX Options'') relating to 
physical connectivity fees, effective June 1, 2018. 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 maintains a presence in two 
third-party data centers: (i) The primary data center where the 
Exchange's business is primarily conducted on a daily basis, and (ii) a 
secondary data center, which is predominantly maintained for business 
continuity purposes. The Exchange currently assesses the following 
physical connectivity fees for Members and non-Members on a monthly 
basis: $2,000 per physical port for a 1 gigabyte circuit and $7,000 per 
physical port for a 10 gigabyte circuit. The Exchange proposes to 
increase the fees per physical ports from (i) $2,000 to $2,500 per 
month, per port for a 1 gigabyte circuit and (ii) $7,000 to $7,500 per 
month, per port for a 10 gigabyte circuit. The Exchange notes the 
proposed fees enable it to continue to maintain and improve its market 
technology and services and also notes that the proposed fee changes 
are in line with the amounts assessed by other exchanges for similar 
connections.\6\
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    \6\ See e.g., NYSE Arca Equities Fees and Charges, NYSE Arca 
Marketplace: Other Fees and Charges, Connectivity Fees. See also, 
Nasdaq Phlx LLC Pricing Schedule, Section XI, Direct Connectivity to 
Phlx.
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    The Exchange also proposes to adopt separate physical port fees for 
connection to its secondary data center, which is predominantly 
maintained for business continuity purposes (``Disaster Recovery 
Systems''). Particularly, the Disaster Recovery Systems can be accessed 
via physical ports in Chicago. Members and Non-Members may maintain 
physical ports in order to be able to connect to the Disaster Recovery 
Systems in case of a disaster. Currently, physical ports that are used 
to connect to the Disaster Recovery Systems are assessed the same fees 
as physical ports used to connect to the Exchange's trading system. The 
Exchange proposes to establish separate pricing for physical ports that 
are used to connect to the Disaster Recovery Systems (``Disaster 
Recovery Physical Ports''). Specifically, the Exchange proposes to 
assess a monthly fee of $2,000 per 1 gigabyte Disaster Recovery 
Physical Port and a monthly fee of $6,000 per 10 gigabyte Disaster 
Recovery Physical Port. This amount will continue to enable the 
Exchange to maintain the Disaster Recovery Physical Ports in case they 
become necessary. The Exchange notes that the Disaster Recovery 
Physical Ports may also be used to access the Disaster Recovery Systems 
for the following affiliate exchanges Cboe EDGX Exchange, Inc., Cboe 
BYX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe C2 Exchange, Inc., 
Cboe Exchange, Inc. and Cboe Futures Exchange, LLC as well. The 
Exchange proposes to provide that market participants will only be 
assessed a single fee for any Disaster Recovery Physical Port that also 
accesses the Disaster Recover Systems for these exchanges.\7\
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    \7\ For example, if a market participant uses a 1 gigabyte 
Disaster Recovery Physical Port to connect to the Disaster Recovery 
Systems for both BZX and EDGX, the market participant would only be 
assessed one monthly fee of $2,000.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\8\ in general, and 
furthers the objectives of Section 6(b)(4),\9\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and other persons using its 
facilities. The Exchange also notes that it operates in a highly-
competitive market in which market participants can readily direct 
order flow to competing venues if they deem fee levels at a particular 
venue to be excessive. The proposed rule change reflects a competitive 
pricing structure designed to incent market participants to direct 
their order flow to the Exchange.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed changes are equitable and 
non-discriminatory in that it applies uniformly to all Members. Members 
and non-Members will continue to choose whether they want more than one 
physical port and/or Disaster Recovery Physical Port and choose the 
method of connectivity based on their specific needs. All Members that 
voluntarily select various service options will be charged the same 
amount for the same services.
    The Exchange believes that the proposal represents an equitable 
allocation of reasonable dues, fees, and other charges as its fees for 
physical connectivity are reasonably constrained by competitive 
alternatives. If a particular exchange charges excessive fees for 
connectivity, affected Members and non-Members may opt to terminate 
their connectivity arrangements with that exchange, and adopt a 
possible range of alternative strategies, including routing to the 
applicable exchange

[[Page 28687]]

through another participant or market center or taking that exchange's 
data indirectly. Accordingly, if the Exchange charges excessive fees, 
it would 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.
    Furthermore, the proposed rule change is also an equitable 
allocation of reasonable dues, fees, and other charges as the Exchange 
believes that the proposed increased physical port fees will enable it 
to cover its infrastructure costs associated with establishing physical 
ports to connect to the Exchange's systems. The additional revenue from 
the increased fees will also enable the Exchange to continue to 
maintain and improve its market technology and services. Similarly, the 
Exchange believes the proposed fees for the Disaster Recovery Physical 
Ports will allow the Exchange to maintain the Disaster Recovery 
Physical Ports in case they become necessary.
    Lastly, the Exchange believes the fees remain competitive with 
those charged by other venues and therefore continue to be reasonable 
and equitably allocated to Members.\10\
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    \10\ See e.g., NYSE Arca Equities Fees and Charges, NYSE Arca 
Marketplace: Other Fees and Charges, Connectivity Fees. See also, 
Nasdaq Phlx LLC Pricing Schedule, Section XI, Direct Connectivity to 
Phlx.
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. As discussed above, the 
Exchange believes that fees for connectivity are constrained by the 
robust competition for order flow among exchanges and non-exchange 
markets. The Exchange does not believe that the proposed changes 
represent a significant departure from previous pricing offered by the 
Exchange or pricing offered by the Exchange's competitors. 
Additionally, Members may opt to disfavor the Exchange's pricing if 
they believe that alternatives offer them better value. Further, 
excessive fees for connectivity would serve to impair an exchange's 
ability to compete for order flow rather than burdening competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from Members or other interested 
parties.

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 \11\ and paragraph (f) of Rule 19b-4 
thereunder.\12\ 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-038 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2018-038. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://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 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2018-038, and should be 
submitted on or before July 11, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13159 Filed 6-19-18; 8:45 am]
BILLING CODE 8011-01-P