[Federal Register Volume 85, Number 58 (Wednesday, March 25, 2020)]
[Notices]
[Pages 16978-16981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06190]
[[Page 16978]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88426; File No. SR-CBOE-2020-021]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
March 19, 2020.
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 March 17, 2020, 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt new Footnote 12 of the Fees Schedule
to govern pricing changes in the event the Exchange trading floor
becomes inoperable.\3\ In the event the trading floor becomes
inoperable, the Exchange will continue to operate in a screen-based
only environment using a floorless configuration of the System that is
operational while the trading floor facility is inoperable. The
Exchange would operate using that configuration only until the
Exchange's trading floor facility became operational. Open outcry
trading would not be available in the event the trading floor becomes
inoperable.
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\3\ The Exchange originally submitted the proposed fee changes
on March 16, 2020 (SR-CBOE-2020-020). On March 17, 2020, the
Exchange withdrew that filing and submitted this filing.
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The Exchange first proposes to provide that in the event the Cboe
Options trading floor becomes inoperable, holders of a Market-Maker
Floor Permit will be entitled to act as an electronic Market-Maker and
holders of a Floor Broker Permit will be entitled to access the
Exchange electronically to submit orders to the Exchange, at no further
cost. Currently, in order to act as a Market-Maker electronically a
Trading Permit Holder (``TPH'') must purchase a Market-Maker Electronic
Access Permit. In order to access the Exchange electronically and
submit orders to the Exchange, a TPH must purchase an ``Electronic
Access Permit''. Conversely, TPHs that wish to act as a Market-Maker on
the floor must purchase a Market-Maker Permit and TPHs that wish to act
as a Floor Broker on the floor of the Exchange must purchase a Floor
Broker Permit. The Exchange wishes to encourage floor-based market
participants to participate on the Exchange electronically if the
trading floor becomes inoperable. As such, the Exchange proposes to
provide that holders of a Market-Maker Floor Permit and Floor Broker
Permit are entitled to operate electronically in their registered
capacity at no additional cost (i.e., not charge for an additional
Market-Maker Electronic Access Permit or Electronic Access Permit).
The Exchange next proposes to amend the Floor Broker ADV Discount.
Under this discount program, Floor Broker Trading Permit fees are
eligible for rebates based on the average customer (``C'') open-outcry
contracts executed per day over the course of a calendar month in all
underlying symbols. In light of the Exchange's recent announcement that
it's trading floor would be considered inoperable starting March 16,
2020, the Exchange proposes to provide that for the month of March
2020, ADV will be based on March 1-March 13, 2020 volume.
The Exchange next proposes to provide that in the event the trading
floor becomes inoperable, the Exchange shall waive SPX and SPXW
Execution Surcharges for SPX and SPXW volume executed via the Automated
Improvement Mechanism (``AIM'') for the duration of time the Exchange
operates in a screen-based only environment. The Exchange currently
assesses a SPX Execution Surcharge of $0.21 per contract and a SPXW
Execution Surcharge of $0.13 per contract for non-Market Maker orders
in SPX and SPXW, respectively that are executed electronically (with
some exceptions).\4\ The Execution Surcharges were adopted to ensure
that there is reasonable cost equivalence between the primary execution
channels for SPX and SPXW. More specifically, the Execution Surcharges
minimize the cost differentials between manual and electronic
executions, which is in the interest of the Exchange as it must both
maintain robust electronic systems as well as provide for economic
opportunity for floor brokers to continue to conduct business, as the
Exchange believes they serve an important function in achieving price
discovery and customer executions.\5\ In the event the trading floor
becomes inoperable, the only execution available for SPX and SPXW would
be electronic executions. The Exchange still wishes to encourage floor
brokers to continue to conduct business on the Exchange, albeit
electronically when the floor is inoperable. To that end, in order to
approximate the trading floor environment electronically, the Exchange
will make AIM available for SPX/SPXW in the event the trading floor
becomes inoperable. Particularly, the Exchange notes that it can
determine AIM eligibility on a class-by-class basis \6\ and
historically SPX and SPXW have not been designated as eligible for AIM
Auctions. As such, the Exchange does not wish to discourage floor
brokers from executing SPX and SPXW volume via AIM when the trading
floor is inoperable by assessing the Execution
[[Page 16979]]
Surcharges such volume. Indeed, in the absence of the trading floor
being inoperable, AIM would not be available for SPX/SPX and such
volume would otherwise execute on the floor and not be subject to the
Execution Surcharges.
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\4\ See Cboe Options Fees Schedule, Footnote 21.
\5\ See e.g., Securities Exchange Act Release No. 71295 (January
14, 2014) 79 FR 3443 (January 21, 2014) (SR-CBOE-2013-129).
\6\ See Rule 5.37(a)(1) and 5.38(a)(1).
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The Exchange next proposes to adopt an AIM Execution Surcharge for
SPX, SPXW and VIX AIM Agency/Primary orders for all market participants
which would apply only when the Exchange operates in a screen-based
only environment and which would be invoiced to the executing TPH.
Specifically, the Exchange proposes to adopt a $0.05 per contract fee
for SPX and SPXW AIM Agency/Primary orders and a $0.04 per contract fee
for VIX AIM Agency/Primary orders. The Exchange notes that currently,
SPX, SPXW and VIX orders executed via open-outcry are assessed floor
brokerage fees. Specifically, SPX/SPXW orders are assessed a floor
brokerage fee of $0.04 per contract fee for non-crossed orders and a
$0.02 per contract fee for crossed orders and VIX orders are assessed a
floor brokerage fee of $0.03 per contract for non-crossed orders and
$0.015 per contract for crossed orders. The Exchange notes that in the
event the trading floor becomes inoperable, volume that would otherwise
be executed on the floor would have to be executed electronically. The
Exchange believes it's appropriate to continue to assess this volume,
notwithstanding the fact that it is being moved to an electronic
channel.
The Exchange also proposes to provide that SPX/SPXW, VIX and RUT
contracts executed via AIM during the time when the Exchange operates
in a screen-based only environment will not count towards the 1,000
contract thresholds for the electronic SPX/SPXW, VIX and RUT Tier
Appointment Fee. Currently, the Exchange assesses separate monthly Tier
Appointment Fees to electronic and floor Market-Maker holding a Market-
Maker Electronic Access Permit or Market-Maker Floor Permit,
respectively, that trade SPX (including SPXW), VIX or RUT contracts at
any time during the month. The Exchange proposes to exclude SPX/SPXW,
VIX and RUT volume executed via AIM during the time when the Exchange
operates in a screen-based only environment, as the Exchange does not
wish to discourage the sending of such orders via AIM during that time.
The Exchange notes that the electronic Tier Appointment fees are
intended to be assessed to Market-Maker TPHs who act as Market-Makers
electronically and engage in trading of these products (as opposed to
those who normally execute volume via open outcry, but must participate
electronically due to the trading floor being inoperable).
The Exchange next proposes to provide that for purposes of the
Market-Maker EAP Appointments Sliding Scale, the total quantity will be
determined by the highest quantity used at any point during the month,
excluding additional quantity added during the time the Exchange
operates in a screen-based only environment. Currently, during Regular
Trading Hours, a Market-Maker has an appointment to trade open outcry
in all classes traded on the Exchange, at no charge.\7\ Electronic
Market-Makers however, must select appointments and are charged for one
or more ``Appointment Units'' (which are scaled from 1 ``unit'' to more
than 5 ``units''), depending on which classes they elect appointments
in.\8\ The Exchange does not wish to subject Market-Makers to increased
fees as a result of selecting appointments to trade electronically in
classes during a time when the Exchange operates in a screen-based only
environment that they otherwise trade, at no charge, on the floor.
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\7\ See Rule 5.50(e).
\8\ Appointment weights for each appointed class are set forth
in Cboe Options Rule 5.50(g) and are summed for each Market-Maker in
order to determine the total appointment units, to which fees will
be assessed.
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Lastly, as noted above, SPX and SPXW have not historically been
designated as eligible for AIM Auctions. The Exchange anticipates that
it will designate SPX/SPXW as eligible for AIM Auctions in the event
the trading floor becomes inoperable. The header relating to AIM in the
Rate Table for Underlying Symbol List A Schedule however references
only that AIM is available for (1) VIX and (2) SPX/SPXW during Global
Trading Hours.\9\ As such, the Exchange proposes to clarify in proposed
Footnote 12 of the Fees Schedule that AIM would be available for SPX/
SPXW during Regular Trading Hours, in the event the trading floor is
inoperable.
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\9\ See Cboe Options Fees Schedule, Rate Table--Underlying
Symbol List A.
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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. Specifically, the Exchange
believes the proposed rule change is consistent with the 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. Additionally, the Exchange
believes the proposed rule change is consistent with Section 6(b)(4) of
the Act, which requires that Exchange rules provide for the equitable
allocation of reasonable dues, fees, and other charges among its
Trading Permit Holders and other persons using its facilities.
The Exchange believes the proposed rule change to allow holders of
Floor Trading Permits to operate in their registered capacity
electronically at no further cost is reasonable as such market
participants would not be subject to additional costs in the event they
can only participate electronically due to the trading floor being
inoperable. Indeed, in such an event, the Exchange wishes to encourage
floor-based market participants to continue to participate on the
Exchange electronically. The Exchange believes the proposed rule change
is equitable and not unfairly discriminatory as all such floor
participants will be treated equally. The Exchange also believes it's
proposal to base the ADV thresholds for the Floor Broker ADV Discount
program on volume from March 1, through March 13, 2020 is reasonable as
such discount is based on open-outcry volume only and the Exchange
floor has been closed indefinitely as of March 16, 2020.
The Exchange believes the proposed rule change to waive SPX and
SPXW Execution Surcharges for AIM volume in the event the trading floor
becomes inoperable is reasonable because market participants will not
be subject to these extra surcharge for these executions. As noted
above, the Execution Surcharges minimize the cost differentials between
manual and electronic executions, which is in the interest of the
Exchange as it must both maintain robust electronic systems as well as
provide for economic opportunity for floor brokers to continue to
conduct business, as the Exchange believes they serve an important
function in achieving price discovery and customer executions. In the
event the trading floor becomes inoperable, Exchange still wishes to
incentivize floor brokers to conduct business on the Exchange, albeit
electronically and as such does not wish to assess a surcharge on
volume that was otherwise executed on floor and not
[[Page 16980]]
via AIM. As discussed above, the Exchange wishes to make AIM available
for SPX/SPXW in the event the trading floor is inoperable in order to
best approximate the trading floor in an electronic environment.
Indeed, the Exchange believes waiving the Execution Surcharges for
volume executed via AIM in the event the trading floor is inoperable
will promote and encourage trading of these products notwithstanding
the fact that manual executions are no longer available. Additionally,
the Exchange does not wish to assess the Execution Surcharges on AIM
volume as AIM provides price improvement opportunities for these
orders, similar to the opportunities that are generally available to
them on the trading floor, which protects customers seeking execution
of these orders. The Exchange believes the proposed change is also
equitable and not unfairly discriminatory as it applies uniformly to
all similarly situated market participants, as all TPHs will be able to
execute electronically via AIM and be subject to equivalent execution
costs while the trading floor is inoperable.
The Exchange believes the proposal to adopt an AIM Execution
Surcharge for SPX/SPXW and VIX Agency/Primary orders is reasonable as
the proposed rates are similar to the total rates charged for volume
that is executed via open-outcry.\10\ The Exchange also notes that the
Fees Schedule already provides for a similar scenario of such rates
being assessed in the event the trading floor is inoperable. For
example, Footnote 15 of the Fees Schedule provides that in the event
the Exchange's exclusively listed options must be traded at a Back-up
Exchange pursuant to Cboe Options Rule 5.26, the Back-up Exchange has
agreed to apply the per contract and per contract side fees (i.e., the
Floor Brokerage fees) to such transactions. Accordingly, the Exchange
believes it's similarly appropriate to adopt and apply similar fees to
transactions that must occur via an electronic execution channel
(instead of on a Back-Up Exchange) due to the Exchange's trading floor
being inoperable. The Exchange also notes that as discussed above, it
is not otherwise assessing the SPX/SPXW Execution Surcharges on AIM
SPX/SPXW orders. The Exchange believes the proposed change is also
equitable and not unfairly discriminatory as it applies uniformly to
all similarly situated market participants, as all TPHs will be able to
execute electronically via AIM and be subject to equivalent execution
costs while the trading floor is inoperable.
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\10\ See Cboe Options Fees Schedule, Floor Brokerage Fees.
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The Exchange believes its proposal to provide that SPX/SPXW, VIX
and RUT contracts executed via AIM during a time when the Exchange
operates in a screen-based only environment will not count towards the
1,000 contract thresholds for the electronic SPX/SPXW, VIX and RUT Tier
Appointment Fees is reasonable as Market-Makers that would otherwise
meet the current contract thresholds due to the need to participate on
the Exchange electronically will not be subject to an additional Tier
Appointment Fee for volume executed via AIM. The Exchange believes the
proposed change is reasonable as the Tier Appointment fees were
intended to apply to TPHs who act as electronic Market-Makers in SPX/
SPX, VIX and RUT, not those that notwithstanding the trading floor
being inoperable would act as floor Market-Makers and trade these
products. The Exchange anticipates Market-Maker a large portion of
volume for any Market-Maker that trades in SPX/SPXW, VIX and RUT only
in open cry will be executed via AIM in the event the trading floor is
inoperable. Accordingly, the Exchange does not wish to assess the Tier
Appointment fees to Market-Makers who do not usually conduct
significant electronic volume in these products and would not
participate electronically if not for the trading floor being
inoperable. Additionally, the Exchange does not wish to discourage the
use of AIM for SPX/SPXW, VIX or RUT as AIM provides price improvement
opportunities for these orders, similar to the opportunities that are
generally available to them on the trading floor, which protects
customers seeking execution of these orders. The proposed change is
equitable and not unfairly discriminatory because it will apply
uniformly to all similarly situated market participants, as it applies
to all Market-Makers trading in these products.
The Exchange believes the proposal to not count Appointment Units
added during a time when the Exchange operates in a screen-based only
environment toward the total quantity of Appointment Units for purposes
of calculating the Market-Maker EAP Appointments Sliding Scale is
reasonable, as Market-Makers should not be subject to additional
charges resulting from any additional appointments selected during a
time when the trading floor is inoperable. As discussed above, floor
Market-Makers have an appointment to trade open outcry in all classes
traded on the Exchange at no cost. The Exchange does not wish to
subject Market-Makers to increased fees as a result of selecting
appointments to trade classes electronically during a time when the
trading floor is inoperable, particularly classes they would otherwise
trade at no charge on the trading floor. The proposed change is
equitable and not unfairly discriminatory because it will apply
uniformly to all similarly situated market participants, as it will
apply to all Market-Makers, while also ensuring that Market-Makers who
generally operate on the trading floor will not be subject to
additional costs due to the unavailability of the trading floor.
Lastly, the Exchange believes its proposal to clarify in the fees
schedule that AIM may be available for SPX/SPXW during Regular Trading
Hours in the even the trading floor becomes inoperable will provide
clarity in the Fees Schedule and alleviate potential confusion, thereby
removing impediments to and perfecting the mechanism of a free and open
market and a national market system, and, in general, protecting
investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that are not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange notes the
proposed changes are not intended to address any competitive issue, but
rather to address fee changes it believes are reasonable in the event
the trading floor becomes inoperable, thereby only permitting
electronic participation on the Exchange. 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 proposed changes apply equally to all
similarly situated market participants. The Exchange 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 changes only affect trading on
the Exchange in limited circumstances.
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.
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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 \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-CBOE-2020-021 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-2020-021. 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. 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-CBOE-2020-021 and should be submitted on
or before April 15, 2020.
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06190 Filed 3-24-20; 8:45 am]
BILLING CODE 8011-01-P