[Federal Register Volume 84, Number 97 (Monday, May 20, 2019)]
[Notices]
[Pages 22916-22919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10352]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85855; File No. SR-C2-2019-010]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Add 
Certain Fees Related to the Listing and Trading of Options Contracts on 
the Dow Jones Industrial Average Index (``DJX'')

May 14, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 22917]]

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 7, 2019, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') 
filed with the Securities and Exchange Commission (the ``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to add 
certain fees related to the listing and trading of options contracts on 
the Dow Jones Industrial Average Index (``DJX''). 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 (http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    On May 8, 2019, the Exchange will begin listing DJX options for 
trading.\3\ Accordingly, the Exchange proposes to amend its Fee 
Schedule to codify standard transaction fees for DJX transactions. The 
proposed changes will be effective May 8, 2019.
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    \3\ See Interpretation and Policy .01 to Rule 24.
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    Specifically, the Exchange proposes to add various fee codes for 
executions and linkage routing in DJX options. The proposed rates 
applicable to each proposed fee code for executions and for linkage 
routing correspond to the rates that currently apply to the same 
execution and linkage routing types in the Russell 2000 Index options 
(``RUT''). The Exchange also proposes to amend the Index License 
Surcharge fees that apply to all non-Public Customer transactions to 
include a fee for DJX.
    Regarding executions in DJX options, fee code DC will be appended 
to all Public Customer orders executed in DJX options, and will result 
in a rate of $0.15 per contract. Fee code DM will be appended to all C2 
Market-Maker orders executed in DJX options, and will result in a rate 
of $0.35 per contract. Fee code DN will be appended to Non-Customer and 
Non-Market-Maker orders executed in DJX options, and will result in a 
rate of $0.55 per contract. Fee code DO will be appended to trades 
executed on the open in DJX options, and will be free. The proposed 
fees assessed are the same for corresponding execution types in RUT.
    Regarding linkage routing fees for orders routed away to another 
exchange in DJX, fee code FC will be appended to all routed Customer 
orders in DJX options, and will result in a fee of $0.85. Fee code FM 
will be appended to all routed Market-Marker orders in DJX options, and 
will result in a fee of $1.05. Fee code FN will be appended to all 
routed Non-Customer and Non-Market-Maker orders in DJX options, and 
will result in a fee of $1.25. Fee code FO will be appended to all 
order routed at the open in DJX, and will be free. The proposed fees 
assessed are the same for corresponding linkage routing types in RUT.
    As stated, the Exchange also proposes to amend the Index License 
Surcharge fee, which is applicable to all non-Public Customer 
transactions, to include a fee of $0.10 per contract assessed for 
transactions in DJX options. The Exchange proposes to assess a 
Surcharge of $0.10 per contract in order to recoup the costs associated 
with the DJX license.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the Section 6 of the Act,\4\ in general, and Section 6(b)(4),\5\ 
in particular, as it is designed to provide for the equitable 
allocation of reasonable dues, fees and other charges among its Trading 
Permit Holders (``TPHs'') and other persons using its facilities.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    Specifically, the Exchange believes it is reasonable to charge 
different fee amounts to different user types for executions and 
linkage routing in DJX options in the manner proposed because the 
proposed fees are consistent with the price differentiation and type of 
TPH transactions that exists today on the Exchange for another index 
option product, RUT, as well as on its affiliated exchange, Cboe 
Exchange, Inc. (``Cboe Options'') for index option products, which 
includes DJX options.\6\ Additionally, the Exchange believes the 
proposed fee amounts for DJX executions and linkage routing are 
reasonable because the proposed fee amounts correspond to the fee 
amounts charged for executions and linkage routing in RUT on the 
Exchange today. In addition to this, the Exchange believes that the 
proposed surcharge for DJX options is reasonable because a similar 
surcharge exists on the Exchange today for RUT options (which is higher 
than the proposed surcharge for DJX). The Exchange also notes that Cboe 
Options currently assesses a $0.10 surcharge fee for DJX options.\7\ 
Furthermore, the Exchange believes that the proposed fees for the newly 
listed DJX options on C2 are reasonable as the Exchange's affiliated 
exchange, Cboe BZX Exchange, Inc. (``BZX Options'') recently added 
comparable execution, linkage routing and surcharge fees for a newly 
listed index option product, RUT.\8\ The Exchange believes these types 
of fee codes for newly or recently listed index options are reasonable 
because they promote and encourage trading in such products.
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    \6\ See Cboe Options Fees Schedule, Index Options Rate Table.
    \7\ Id.
    \8\ See Securities Exchange Act Release No. 84401 (October, 11, 
2018), 83 FR 52591 (October 17, 2018) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Related to Fees on 
Cboe BZX Exchange, Inc.) (SR-CboeBZX-2018-075).
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    The Exchange also believes that it is equitable and not unfairly 
discriminatory to assess lower fees for executions and linkage routing 
to Customers (including Public Customers) as compared to other market 
participants because Customer order flow enhances liquidity on the 
Exchange for the benefit of all market participants. Specifically, 
Customer liquidity benefits all market participants by providing more 
trading opportunities, which attracts Market-Makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. Moreover, the options industry has 
a long history of providing preferential pricing to Customers, and the 
Exchange's current Fee Schedule

[[Page 22918]]

currently does so in many places, as do the fees structures of multiple 
other exchanges.\9\ The Exchange notes that all fee amounts applicable 
to Customers will be applied equally to all Customers, i.e. all 
Customers will be assessed the same amount.
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    \9\ See e.g. supra note 6. See also BZX Options Fee Schedule, 
Fee Codes and Associated Fees.
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    Additionally, the Exchange believes that it is equitable and not 
unfairly discriminatory to assess lower fees for executions and linkage 
routing to Market-Makers as compared to other market participants, 
other than Customers, because Market-Makers, unlike other market 
participants, take on a number of obligations, including quoting 
obligations, which other market participants do not have. Further, 
these lower fees offered to Market-Makers are intended to incent 
Market-Makers to quote and trade more on C2 Options, thereby providing 
more trading opportunities for all market participants. The Exchange 
notes that all fee amounts applicable to Market-Makers will be applied 
equally to all Market-Makers, i.e. all Market-Makers will be assessed 
the same amount. Similarly, the Exchange notes that the DJX fee amounts 
for each separate type of other market participant will be assessed 
equally to all such market participants, i.e. all Non-Customer and Non-
Market-Maker orders will be assessed the same amount.
    The Exchange believes its proposed fees for DJX orders that are 
routed away from the Exchange are reasonable taking into account 
routing costs and also notes that the proposed fees are in line with 
amounts assessed by other exchanges.\10\ For the reasons described 
above, the Exchange also believes that it is equitable and not unfairly 
discriminatory to assess lower routing fees to Customers as compared to 
other market participants. The Exchange notes that routing through the 
Exchange is voluntary and market participants can readily direct order 
flow to another exchange if they deem Exchange fee levels to be 
excessive.
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    \10\ See supra note 9.
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    Finally, the Exchange believes that it is reasonable to asses an 
Index License Surcharge fee to all non-Public Customer transactions 
because the surcharge helps recoup some of the costs associated with 
the license for DJX. As previously stated, the Exchange notes that the 
surcharge amount is the same as the amount assessed on other exchanges 
and lower than the amount assessed for RUT options on the Exchange. The 
proposed Surcharge is also equitable and not unfairly discriminatory 
because the amount will be assessed to all market participants to whom 
the Surcharge applies. Not applying the DJX License Surcharge fee to 
Public Customer orders is equitable and not unfairly discriminatory 
because this is designed to attract Customer DJX option orders, which 
increases liquidity and provides greater trading opportunities to all 
market participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed amendments to its Fee Schedule 
will not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe that the proposed rule change will impose any burden 
on intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the DJX fee amounts for 
each separate type of market participant will be assessed equally to 
all such market participants. While different fees are assessed to 
different market participants in some circumstances, the obligations 
and circumstances between these market participants differ, as 
discussed above. For example, Market-Makers have quoting obligations 
that are not applicable to other market participants. Further, the 
proposed fees structure for DJX is intended to encourage more trading 
of DJX, which brings liquidity to the Exchange and benefits all market 
participants.
    The Exchange also does not believe that the proposed rule changes 
will impose any burden on intermarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act because the 
proposed DJX fees are in line with amounts assessed for index option 
products by other exchanges. The Exchange notes that to the extent that 
the proposed fee rates and rebates for certain orders in DJX options 
make the Exchange a more attractive venue for market participants than 
other exchanges, market participants are welcome to become TPHs and 
execute such orders on the Exchange. Also, as stated, market 
participants are free to direct order flow to other competing venues if 
they deem the Exchange's fees excessive.

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 written comments from TPHs 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 \12\ 
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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    \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-C2-2019-010 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-C2-2019-010. 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

[[Page 22919]]

provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. 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-C2-2019-010 and should be 
submitted on or before June 10, 2019.

    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,
Deputy Secretary.
[FR Doc. 2019-10352 Filed 5-17-19; 8:45 am]
 BILLING CODE 8011-01-P