[Federal Register Volume 84, Number 156 (Tuesday, August 13, 2019)]
[Notices]
[Pages 40114-40117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17233]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86588; File No. SR-CBOE-2019-039]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
August 7, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 1, 2019, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') 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 Exchange, Inc. (the ``Exchange'' or ``Cboe 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 (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 fees schedule to (i) amend the
Cboe Options Clearing Trading Permit Holder Proprietary Products
Sliding Scales Program (Proprietary Product Sliding Scales'') and (ii)
amend the Marketing Fee program, effective August 1, 2019.
Proprietary Sliding Scales
The Proprietary Products Sliding Scales table provides that
Clearing Trading Permit Holder Proprietary transaction fees for
Clearing Trading Permit Holders (origin code ``F'') and for Non-
Clearing Trading Permit Holder Affiliates (``Non-TPH Affiliates'')
(origin code ``L'') (collectively, Clearing TPHs'') in Underlying
Symbol List A \3\ will be reduced provided a Clearing TPH reaches
certain average daily volume (``ADV'') thresholds identified in Table A
(the ``Firm Sliding Scale'') and Table B (the ``VIX Sliding Scale'').
More specifically, Table A, the Firm Sliding Scale, provides for
reduced Clearing TPH transaction fees in Underlying Symbol List A
options, provided a Clearing TPH reaches certain ADV thresholds in all
underlying symbols excluding Underlying Symbol List A on the Exchange
in a month. Table B, the VIX Sliding Scale, provides for reduced
Clearing TPH transaction fees in VIX, provided a Clearing TPH reaches
certain VIX options volume thresholds during a month. For each Clearing
TPH, the Exchange assesses the better of (a) the Firm Sliding Scale as
applied to all Underlying Symbol List A products or (b) the Firm
Sliding Scale as applied to all Underlying Symbol List A except
[[Page 40115]]
VIX, plus the discounted transaction fees as calculated under the VIX
Sliding Scale. More specifically, for calculating a Clearing TPH's
total proprietary product transaction fees, the Exchange currently uses
the following methodology: If using the VIX Sliding Scale plus the Firm
Sliding Scale (minus VIX options volume) results in lower total
Clearing TPH proprietary transaction fees than just using the Firm
Sliding Scale, the Exchange will apply the VIX Sliding Scale plus the
Firm Sliding Scale (deducting the VIX options volume from the Firm
Sliding Scale). If using the VIX Sliding Scale plus the Firm Sliding
Scale (minus VIX options volume) results in higher total Clearing TPH
proprietary transaction fees than just using the Firm Sliding Scale,
the Exchange will apply only the Firm Sliding Scale.
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\3\ See Cboe Options Footnote 34. Underlying Symbol List A
currently includes OEX, XEO, RUT, RLG, RLV, RUI, AWDE, FTEM, FXTM,
UKXM, SPX (includes SPXw), VIX, VOLATILITY INDEXES and binary
options.
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In order to simplify and streamline the Proprietary Sliding Scales
program, the Exchange proposes to make the Firm Sliding Scale and VIX
Sliding Scales separate and independent programs. That is, the Exchange
proposes to no longer assess the lesser amount of the transaction fees
calculated using only the Firm Sliding Scale as applied to all
Underlying Symbol List A products or (b) the Firm Sliding Scale as
applied to all Underlying Symbol List A except VIX, plus the discounted
transaction fees as calculated under the VIX Sliding Scale. Rather, all
Underlying Symbol List A options, excluding VIX, will be subject to the
``Cboe Options Clearing Trading Permit Holder Proprietary Products
Sliding Scale'' (formerly Table A) and all VIX volume will always be
subject to the ``Cboe Options Clearing Trading Permit Holder VIX
Sliding Scale'' (formerly Table B). The current methodology was
originally adopted to provide a Clearing TPH with the most beneficial
fee arrangement (the lowest fees) without double-counting VIX options
volume. The Exchange notes however, the more beneficial fee arrangement
for Clearing TPHs has historically and consistently been to apply the
rates under the Firm Sliding Scale to all Underlying Symbol List A
products excluding VIX and apply the rates under the VIX Sliding Scale
to all VIX volume (which provides for the same end result as is being
proposed by separating the program). For example, this result has been
true for all Clearing TPHs to date this year 2019. As such, the
Exchange believes the proposal to separate the sliding scale programs
does not significantly or substantively impact Clearing TPHs.
Marketing Fee Program
The Exchange next proposes to amend its Marketing Fee program. By
way of background the Marketing Fee is assessed on certain transactions
of Market-Makers resulting from (i) customer orders from payment
accepting firms, or (ii) customer orders that have designated a DPM
under Cboe Options Rule 8.80, a ``Preferred Market[hyphen]Maker'' under
Cboe Options Rule 8.13 or a ``Lead Market-Maker'' under Cboe Options
Rule 8.15 (collectively ``Preferenced Market[hyphen]Maker''). The funds
collected via this Marketing Fee are then put into pools controlled by
the Preferenced Market-Maker. The Preferenced Market-Maker controlling
a certain pool of funds can then determine the order flow provider(s)
to which the funds should be directed in order to encourage such order
flow provider(s) to send orders to the Exchange.
The Exchange proposes to simplify and amend the Marketing Fee
program to provide that the Marketing Fee will be assessed on all
transactions of Market-Makers resulting from any Customer order
(instead of only Customer orders from (i) payment accepting firms or
(ii) that have designated a Preferenced Market-Maker). The Exchange
notes that currently, order flow providers are given the option of
``opting in'' to the Marketing Fee Program to be eligible to receive
marketing fees (i.e., become a payment accepting firm).\4\ The Exchange
notes that over time however, the vast majority of firms have become
payment accepting firms and there are only a handful of order flow
providers that are not payment accepting firms. The Exchange also notes
that currently the vast majority of customer orders designate a
Preferenced Market-Maker. Accordingly, the vast majority of Market-
Maker orders that result from a Customer order are already subject to
the Marketing Fee. While the Exchange has no way of predicting with
certainty how the rule change will impact Trading Permit Holders, the
Exchange anticipates the impact of the proposed change to be de minimis
for all TPHs. Moreover, the Exchange believes the proposed change will
also provide for more streamlined administration of the Marketing Fee
program and uniform application of the Marketing Fee. Lastly, the
proposed amendment to the Marketing Fee program will further harmonize
the program with the corresponding Marketing Fee program of its
affiliate exchange, Cboe EDGX Exchange, Inc., (``Cboe EDGX'') and is
also in line with how other exchanges apply their respective marketing
fee programs (i.e., marketing fees apply to all Market-Maker
transactions resulting from any Customer order).\5\
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\4\ The Exchange has had no role with respect to the
negotiations between Preferenced Market-Makers and payment accepting
firms. Rather, the Exchange merely collects and administers the
payment of the fee collected on those transactions for which the
Preferenced Market-Maker has advised the Exchange that it has
negotiated with a payment accepting firm to pay for the firm's order
flow.
\5\ See e.g., Cboe EDGX Options Exchange Fee Schedule, Marketing
Fees, which provides the marketing fees are charged to all Market
Makers who are counterparties to a trade with a Customer. See also
Nasdaq ISE, Options 7 Pricing Schedule, Section 6(E), Marketing Fee
and NYSE American Options Fee Schedule, Section IA, Options
Transaction Fees and Credits, Marketing Charges Per Contract for
Electronic Transactions.
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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, in general, and furthers
the objectives of Section 6(b)(4), in particular, as it is designed to
provide for the equitable allocation of reasonable dues, fees and other
charges among its Members and issuers and other persons using its
facilities. The Exchange also believes that the proposed rule change is
consistent with the objectives of Section 6(b)(5) requirements that the
rules of an exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest, and, particularly, is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
The Exchange believes that it is reasonable and equitable to
separate the Proprietary Sliding Scales Program (i.e., Table A, Firm
Sliding Scale and Table B, VIX Sliding Scale), because Clearing TPHs
are still eligible to receive discounted transaction fees for their
Underlying Symbol List A volume. Additionally, as discussed above,
under the current ``best of'' calculation, the most beneficial fee
arrangement (the lowest fees) for Clearing TPHs has consistently and
historically been to apply the rates under the Firm Sliding Scale on
all Underlying Symbol List A products excluding VIX and apply the rates
under the VIX Sliding Scale on all
[[Page 40116]]
VIX volume, which is exactly how the programs will function separately
as proposed. As such, the Exchange believes the proposal to separate
the sliding scale programs does not significantly or substantively
affect Clearing TPHs. Moreover, the proposed rule change streamlines
and simplifies the Proprietary Sliding Scales program.
The Exchange also believes that notwithstanding the proposed rule
change, the Firm Sliding Scale and VIX Sliding Scale will continue to
incentivize option volume. Additionally, the Exchange notes that lower
fees for executing more contracts is equitable and not unfairly
discriminatory because it provides market participants with an
incentive to execute more contracts on the Exchange. This brings
greater liquidity and trading opportunity, which benefits all market
participants. The Exchange believes that the proposed change is not
unfairly discriminatory because it will apply to all Clearing TPHs
uniformly. The Exchange also believes offering lower fees under the
Proprietary Sliding Scale to Clearing TPHs and not other market
participants is equitable and not unfairly discriminatory because
Clearing TPHs must take on certain obligations and responsibilities,
such as clearing and membership with the Options Clearing Corporation,
as well as significant regulatory burdens and financial obligations,
that other market participants are not required to undertake.
The Exchange believes the proposed rule change to apply the
Marketing Fee to all Market-Maker transactions that result from
Customer orders (instead of Customer orders that are from payment
accepting firms or designate a Preferenced Market-Maker) is reasonable
because the Marketing Fee amount is not changing. Rather, the proposed
rule change results in the Marketing Fee being applied uniformly on all
Market-Maker transactions where the counterparty is a Customer. As
discussed above, the Exchange believes the proposed change will not
have a significant impact, as the vast majority of Market-Maker-to-
Customer transactions are already subject to the Marketing Fee as (i)
only a few order flow providers are not already payment accepting firms
and (ii) the majority of orders designate a Preferenced Market-Maker.
The Exchange also note that the Marketing Fee program is designed to
attract additional order flow to the Exchange, which would increase
liquidity and benefit all market participants. Lastly, the proposed
rule change enables a more streamlined administration of the Marketing
Fee program and is in line with how other exchanges, including the
Exchange's affiliate, administer their respective Marking Fee
programs.\6\
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\6\ See e.g., Cboe EDGX Options Exchange Fee Schedule, Marketing
Fees, which provides the marketing fees are charged to all Market
Makers who are counterparties to a trade with a Customer. See also
Nasdaq ISE, Options 7 Pricing Schedule, Section 6(E), Marketing Fee
and NYSE American Options Fee Schedule, Section IA, Options
Transaction Fees and Credits, Marketing Charges Per Contract for
Electronic Transactions.
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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. Specifically, the Exchange
does not believe that the proposed change will impose any burden on
intramarket competitions that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed change to
the Proprietary Sliding Scales program and Marketing Fee Program, will
be applied equally to Clearing TPHs and Market-Makers, respectively.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed change relating to the Proprietary Sliding Scales program only
affects Exchange proprietary products, which are traded exclusively on
the Exchange. Additionally, the proposed change to the Marketing Fee
program, mirrors how other exchanges, including Cboe EDGX, apply their
respective marketing fees. The Exchange notes that neither proposed
rule change it intended as a competitive pricing change, but rather as
a change to streamline and simplify both programs.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \7\ and paragraph (f) of Rule 19b-4 \8\
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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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 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-CBOE-2019-039 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-CBOE-2019-039. 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 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; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions
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should refer to File Number SR-CBOE-2019-039 and should be submitted on
or before September 3, 2019.
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\9\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17233 Filed 8-12-19; 8:45 am]
BILLING CODE 8011-01-P