[Federal Register Volume 84, Number 157 (Wednesday, August 14, 2019)]
[Notices]
[Pages 40445-40447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17384]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86604; File No. SR-CBOE-2019-040]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Options Regulatory Fee
August 8, 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 relating to the Options Regulatory Fee. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to increase the Options Regulatory Fee
(``ORF'') from $0.0045 per contract to $0.0046 per contract in order to
help ensure that revenue collected from the ORF, in combination with
other regulatory fees and fines, meets the Exchange's total regulatory
costs.
The ORF is assessed by Cboe Options to each Trading Permit Holder
(``TPH'') for options transactions cleared by the TPH that are cleared
by the Options Clearing Corporation (``OCC'') in the customer range,
regardless of the exchange on which the transaction occurs.\3\ In other
words, the Exchange imposes the ORF on all customer-range transactions
cleared by a TPH, even if the transactions do not take place on the
Exchange. The ORF is collected by OCC on behalf of the Exchange from
the Clearing Trading Permit Holder (``CTPH'') or non-CTPH that
ultimately clears the transaction. With respect to linkage
transactions, Cboe Options reimburses its routing broker providing
Routing Services pursuant to Cboe Options Rule 6.14B for options
regulatory fees it incurs in connection with the Routing Services it
provides.
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\3\ The ORF also applies to customer-range transactions executed
during Extended Trading Hours.
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Revenue generated from ORF, when combined with all of the
Exchange's other regulatory fees and fines, is designed to recover a
material portion of the regulatory costs to the Exchange of the
supervision and regulation of TPH customer options business. Regulatory
costs include direct regulatory expenses and certain indirect expenses
for work allocated in support of the regulatory function. The direct
expenses include in-house and third party service provider costs to
support the day to day regulatory work such as surveillances,
investigations and examinations. The indirect expenses include support
from such areas as human resources, legal, information technology and
accounting. These indirect expenses are estimated to be approximately
10% of Cboe Options' total regulatory costs for 2019. Thus, direct
expenses are estimated to be approximately 90% of total regulatory
costs for 2019. In addition, it is Cboe Options' practice that revenue
generated from ORF not exceed more than 75% of total annual regulatory
costs.
The Exchange monitors its regulatory costs and revenues at a
minimum on a semi-annual basis. If the Exchange determines regulatory
revenues exceed or are insufficient to cover a material portion of its
regulatory costs, the Exchange will adjust the ORF by submitting a fee
change filing to the Commission. The Exchange also notifies TPHs of
adjustments to the ORF via regulatory circular.\4\ Based on the
Exchange's most recent semi-annual review, the Exchange is proposing to
increase the amount of ORF that will be collected by the Exchange from
$0.0045 per contract side to $0.0046 per contract side. The proposed
increase is based on the Exchange's estimated projections for its
regulatory costs, balanced with recent options volumes. These
expectations are estimated, preliminary and may change. There can be no
assurance that the Exchange's final costs for 2019 will not differ
materially from these expectations and prior practice, nor can the
Exchange predict with certainty whether options volume will remain at
the current level going forward; however, the Exchange believes that
revenue generated from the
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ORF (as amended), when combined with all of the Exchange's other
regulatory fees and fines, would cover a material portion, but not all,
of the Exchange's regulatory costs.\5\
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\4\ The Exchange endeavors to provide TPHs with such notice at
least 30 calendar days prior to the effective date of the change.
The Exchange notified TPHs of the proposed rate change for August 1,
2019 on June 25, 2019. See Cboe Options Regulatory Circular RF19-023
``Modification of the Options Regulatory Fee.''
\5\ The Exchange notes that its regulatory responsibilities with
respect to TPH compliance with options sales practice rules have
largely been allocated to FINRA under a 17d-2 agreement. The ORF is
not designed to cover the cost of that options sales practice
regulation.
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The Exchange will continue to monitor the amount of revenue
collected from the ORF to ensure that it, in combination with its other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\7\ which provides that Exchange rules may provide
for the equitable allocation of reasonable dues, fees, and other
charges among its TPHs and other persons using its facilities.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \8\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
\8\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed fee change is reasonable because
the modest increase is necessary to offset the anticipated regulatory
costs, and which, in combination with other regulatory fees and fines,
still is not expected to exceed the Exchange's total regulatory costs.
The Exchange has designed the ORF to generate revenues that would be
less than or equal to 75% of the Exchange's regulatory costs, which is
consistent with the view of the Commission that regulatory fees be used
for regulatory purposes and not to support the Exchange's business
side. As discussed above, the Exchange determined to increase ORF after
its semi-annual review of its regulatory costs and regulatory revenues,
which includes revenues from ORF and other regulatory fees and fines.
When taking into account recent options volume, coupled with the
anticipated regulatory fees, the Exchange believes it's reasonable to
increase the ORF amount by $0.0001 per contract side.
Moreover, the Exchange believes the ORF ensures fairness by
assessing higher fees to those TPHs that require more Exchange
regulatory services based on the amount of customer options business
they conduct. Regulating customer trading activity is much more labor
intensive and requires greater expenditure of human and technical
resources than regulating non-customer trading activity, which tends to
be more automated and less labor-intensive. As a result, the costs
associated with administering the customer component of the Exchange's
overall regulatory program are materially higher than the costs
associated with administering the non-customer component (e.g., TPH
proprietary transactions) of its regulatory program.\9\ The Exchange
believes the proposed fee change is equitable and not unfairly
discriminatory in that it is charged to all TPHs on all their
transactions that clear in the customer range at the OCC.
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\9\ If the Exchange changes its method of funding regulation or
if circumstances otherwise change in the future, the Exchange may
decide to modify the ORF or assess a separate regulatory fee on TPH
proprietary transactions if the Exchange deems it advisable.
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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. This proposal does not create
an unnecessary or inappropriate intra-market burden on competition
because the ORF applies to all customer activity, thereby raising
regulatory revenue to offset regulatory expenses. It also supplements
the regulatory revenue derived from non-customer activity. The Exchange
notes, however, the proposed change is not designed to address any
competitive issues. Indeed, this proposal does not create an
unnecessary or inappropriate inter-market burden on competition because
it is a regulatory fee that supports regulation in furtherance of the
purposes of the Act. The Exchange is obligated to ensure that the
amount of regulatory revenue collected from the ORF, in combination
with its other regulatory fees and fines, does not exceed regulatory
costs.
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 \10\ and paragraph (f) of Rule 19b-4 \11\
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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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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 No. SR-CBOE-2019-040 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 No. SR-CBOE-2019-040. 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
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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 No. SR-CBOE-
2019-040, and should be submitted on or before September 4, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17384 Filed 8-13-19; 8:45 am]
BILLING CODE 8011-01-P