[Federal Register Volume 87, Number 64 (Monday, April 4, 2022)]
[Notices]
[Pages 19557-19563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06987]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94540; File No. SR-CBOE-2022-014]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Update 
Its Fees Schedule in Connection With the Exchange's Plans To List and 
Trade Nanos S&P 500 Index Options

March 29, 2022.
    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 23, 2022, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') 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 
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 update its Fees Schedule in connection with the Exchange's plans to 
list and trade Nanos S&P 500 (``NANOS'') Index options. 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 in connection with 
its plans to list and trade Nanos options.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
March 14, 2022 (SR-CBOE-2022-010). On March 23, 2022, the Exchange 
withdrew that filing and submitted this filing.
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    NANOS options are options on the Mini-S&P 500 (``XSP'') Index (the 
value of which is 1/10th the value of the S&P 500 (``SPX'') Index) that 
have an index multiplier of one, and thus a smaller notional value. The 
Exchange believes that investors will benefit from the availability of 
NANOS options by making options overlying the larger-valued SPX Index 
more readily available as an investing tool and at more affordable 
prices for investors.\4\ The Exchange also believes that the investor-
base for NANOS options will be a similar investor-base for XSP options, 
as well as Mini-Russell 2000 (``MRUT'') options, which are also 
proprietary, reduced-value (1/10th) options on a broad-based index. XSP 
and MRUT options are also designed to provide low-cost means to hedge 
investors' portfolios in connection with larger-value broad-based 
indexes (i.e., the RUT and SPX Index) with a smaller outlay of capital. 
The Exchange now proposes to amend its Fees Schedule to accommodate the 
planned listing and trading of NANOS options. The Exchange notes that 
because NANOS, MRUT and XSP are all options on mini-indexes and are 
intended for a similar investor-base, the majority of the proposed 
changes amend the Fees Schedule in connection with trading in NANOS 
options in a manner that is generally consistent with the way in which 
existing transactions fees and programs currently apply to trading in 
XSP and MRUT options.
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    \4\ See Securities Exchange Act Release Nos. 90853 (January 5, 
2021), 86 FR 2006 (January 11, 2021) (SR-CBOE-2020-117); and 91528 
(April 9. 2021), 86 FR 19933 (April 15, 2021) (SR-CBOE-2020-117).
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Standard Transaction Rates and Surcharges
    First, the Exchange proposes to adopt certain standard transaction 
fees in connection with NANOS options. Specifically, the proposed rule 
change adopts certain fees for NANOS options in the Rate Table for All 
Products Excluding Underlying Symbol A,\5\ as follows:
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    \5\ Underlying Symbol List A includes OEX, XEO, RUT, RLG, RLV, 
RUI, UKXM, SPX (includes SPXW), SPESG and VIX. See Cboe Options Fees 
Schedule, Footnote 34.
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     Adopts fee code NO, appended to all Customer (capacity 
``C'') orders in NANOS options and assesses no fee;
     Adopts fee code NN, appended to all non-Customer, non-
Market-Maker (i.e., Clearing Trading Permit Holders (capacity ``F''), 
Non-Clearing Trading Permit Holder Affiliates (capacity ``L''), Broker-
Dealers (capacity ``B''), Joint Back-Offices (capacity ``J''), Non-
Trading Permit Holder Market-Makers (capacity ``N''), and Professionals 
(capacity ``U'')) orders in NANOS options and assesses a fee of $0.01 
per contract; and
     Adopts fee code NM, which is appended to all Market-Maker 
(capacity ``M'') orders in NANOS options and assesses a fee of $0.01 
per contract.
    The Exchange notes that the proposed standard transaction fees in 
connection with NANOS options are slightly less than the fees assessed 
for XSP options. As described above, both NANOS options and XSP options 
overly the Mini-S&P 500 Index; however, NANOS options are lower-priced 
given their multiplier of one.
    The Exchange proposes to exclude NANOS orders from the AIM Contra 
Fee by amending footnote 18 (appended to the AIM Contra Fee) to provide 
that the AIM Contra Execution Fee applies to all orders (excluding 
facilitation orders, per footnote 11) in all products, except MRUT, 
NANOS, XSP, Sector Indexes and Underlying Symbol List A, executed in 
the Automated Improvement Mechanism (``AIM''), Solicitation Auction 
Mechanism (``SAM''), FLEX AIM and FLEX SAM auctions, that were 
initially entered as the contra party to an Agency/Primary Order. 
Applicable standard transaction fees will apply to AIM, SAM, FLEX AIM 
and FLEX SAM executions in MRUT, NANOS, XSP, Sector Indexes and 
Underlying Symbol List A. The Exchange also proposes to exclude Market-
Maker and non-Customer, non-Market-Maker complex orders in NANOS from 
the Complex Surcharge by amending footnote 35 (appended to the Complex 
Surcharge) to provide that the

[[Page 19558]]

Complex Surcharge applies per contract per side surcharge for 
noncustomer complex order executions that remove liquidity from the COB 
and auction responses in the Complex Order Auction (``COA'') and AIM in 
all classes except MRUT, NANOS, XSP, Sector Indexes and Underlying 
Symbol List A. The proposed exclusion from the AIM Contra Fee (and, 
instead, the application of the proposed standard transaction fees) and 
Complex Surcharge in connection with transactions in NANOS will provide 
consistency with the fees and exclusions currently applicable to 
transactions in similar reduced-value XSP and MRUT options.
Fees Programs
    The proposed rule change excludes NANOS volume from the Liquidity 
Provider Sliding Scale, which offers credits on Market-Maker orders 
where a Market-Maker achieves certain volume thresholds based on total 
national Market-Maker volume in all underlying symbols, excluding 
Underlying Symbol List A, MRUT and XSP, during the calendar month. 
Specifically, the proposed rule change updates the Liquidity Provider 
Sliding Scale table to provide that volume thresholds are based on 
total national Market-Maker volume in all underlying symbols excluding 
Underlying Symbol List A, MRUT, NANOS and XSP during the calendar 
month, and that it applies in all underlying symbols excluding 
Underlying Symbol List A, MRUT, NANOS and XSP. The proposed rule change 
also updates footnote 10 (appended to the Liquidity Provider Sliding 
Scale) to provide that the Liquidity Provider Sliding Scale applies to 
Liquidity Provider (Cboe Options Market-Maker, DPM and LMM) transaction 
fees in all products except (1) Underlying Symbol List A (34), MRUT, 
NANOS and XSP, and (2) volume executed in open outcry.\6\
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    \6\ The proposed rule change also updates footnote 6, which is 
appended to the Liquidity Provider Sliding Scale Program, the VIP, 
and the ORS/CORS Programs to reflect the exclusion of MRUT options 
from these programs in the same manner as the options classes 
currently excluded from these programs. Specifically, amended 
footnote 6 provides that in the event of a Cboe Options System 
outage or other interruption of electronic trading on Cboe Options 
that lasts longer than 60 minutes, the Exchange will adjust the 
national volume in all underlying symbols excluding Underlying 
Symbol List A, Sector Indexes, MRUT, MXEA, MXEF, NANOS, DJX and XSP 
for the entire trading day.
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    The proposed rule change updates the Volume Incentive Program 
(``VIP'') table to exclude NANOS volume from the VIP, which currently 
offers a per contract credit for certain percentage threshold levels of 
monthly Customer volume in all underlying symbols, excluding Underlying 
Symbol List A, Sector Indexes, DJX, MRUT, MXEA, MXEF and XSP. The 
proposed rule change also amends footnote 36 (appended to the VIP 
table) to reflect the proposed exclusion of NANOS from the VIP by 
providing (in relevant part) that: The Exchange shall credit each 
Trading Permit Holder the per contract amount resulting from each 
public customer (``C'' capacity code) order transmitted by that Trading 
Permit Holder which is executed electronically on the Exchange in all 
underlying symbols excluding Underlying Symbol List A, Sector Indexes, 
DJX, MRUT, MXEA, MXEF, NANOS, XSP, QCC trades, public customer to 
public customer electronic complex order executions, and executions 
related to contracts that are routed to one or more exchanges in 
connection with the Options Order Protection and Locked/Crossed Market 
Plan referenced in Rule 5.67, provided the Trading Permit Holder meets 
certain percentage thresholds in a month as described in the Volume 
Incentive Program (VIP) table; the percentage thresholds are calculated 
based on the percentage of national customer volume in all underlying 
symbols excluding Underlying Symbol List A, Sector Indexes, MRUT, MXEA, 
MXEF, NANOS, DJX and XSP entered and executed over the course of the 
month; and in the event of a Cboe Options System outage or other 
interruption of electronic trading on Cboe Options, the Exchange will 
adjust the national customer volume in all underlying symbols excluding 
Underlying Symbol List A, Sector Indexes, MRUT, MXEA, MXEF, NANOS, DJX 
and XSP for the entire trading day.
    The proposed rule change excludes NANOS from the list of products 
eligible to receive Break-Up Credits in orders executed in AIM, SAM, 
FLEX AIM, and FLEX SAM, by amending the Break-Up Credits table to 
exclude NANOS along with the products currently excluded--Underlying 
Symbol List A, Sector Indexes, DJX, MRUT, MXEA, MXEF and XSP.
    The Exchange also proposes to exclude Firm (i.e., Clearing Trading 
Permit Holders (capacity ``F'') and Non-Clearing Trading Permit Holder 
Affiliates (capacity ``L'')) transactions in NANOS from the Clearing 
TPH Fee Cap. Specifically, it amends footnote 22 (appended to the 
Clearing TPH Fee Cap table) to provide that all non-facilitation 
business executed in AIM or open outcry, or as a QCC or FLEX 
transaction, transaction fees for Clearing TPH Proprietary and/or their 
Non-TPH Affiliates in all products except MRUT, NANOS, XSP, Sector 
Indexes and Underlying Symbol List A (which includes SPX), in the 
aggregate, are capped at $65,000 per month per Clearing TPH. It 
additionally updates footnote 11 (which is also appended to the 
Clearing TPH Fee Cap table) to provide that the Clearing TPH Fee Cap in 
all products except MRUT, NANOS, XSP, Underlying Symbol List A and 
Sector Indexes (the ``Fee Cap''), among other programs, apply to (i) 
Clearing TPH proprietary orders (``F'' capacity code), and (ii) orders 
of Non-TPH Affiliates of a Clearing TPH.
    The Exchange proposes to exclude NANOS from eligibility for the 
Order Router Subsidy (``ORS'') and Complex Order Router Subsidy 
(``CORS'') Programs, in which Participating TPHs or Participating Non-
Cboe TPHs may receive a payment from the Exchange for every executed 
contract routed to the Exchange through their system in certain 
classes. Specifically, the proposed rule change updates the ORS/CORS 
Program tables to provide that ORS/CORS participants whose total 
aggregate non-customer ORS and CORS volume is greater than 0.25% of the 
total national volume (excluding volume in options classes included in 
Underlying Symbol List A, Sector Indexes, DJX, MRUT, MXEA, MXEF, NANOS 
or XSP) will receive an additional payment for all executed contracts 
exceeding that threshold during a calendar month, and updates footnote 
30 (appended to the ORS/CORS Program tables) to accordingly provide 
that Cboe Options does not make payments under the program with respect 
to executed contracts in options classes included in Underlying Symbols 
List A, Sector Indexes, DJX, MRUT, MXEA, MXEF, NANOS or XSP.
    The Exchange proposes to exclude NANOS from the Floor Broker 
Sliding Scale Rebate Program. The Floor Broker Sliding Scale Rebate 
Program offers rebates for Firm Facilitated and non-Firm Facilitated 
orders that correspond to certain volume tiers and is designed to 
incentivize order flow in multiply-listed options to the Exchange's 
trading floor. As such, the Floor Broker Sliding Scale Rebate Program 
excludes options that are not multiply-listed, which would include 
NANOS. As proposed, the Floor Broker Sliding Scale Rebate Program 
applies to all products except for Underlying Symbol List A, Sector 
Indexes, DJX, MRUT, MXEA, MXEF, NANOS and XSP.
    The Exchange notes that excluding NANOS transactions from the 
above-described programs is consistent with the manner in which XSP and 
MRUT

[[Page 19559]]

transactions are also excluded each of these programs today.
    Additionally, the Exchange proposes to include NANOS in the 
Marketing Fee Program. The Exchange notes that XSP is also currently 
included in the Marketing Fee Program. The Marketing Fee is assessed on 
transactions of Market-Makers, resulting from customer orders at the 
per contract rate provided above on all classes of equity options, 
options on ETFs, options on ETNs and index options, except that the 
marketing fee shall not apply to Sector Indexes, DJX, MRUT, MXEA, MXEF 
or Underlying Symbol List A. A Designated Primary Market-Maker 
(``DPM''), a ``Preferred Market[hyphen]Maker (``PMM''), or a Lead 
Market-Maker (``LMM'') (collectively ``Preferenced 
Market[hyphen]Maker'') are given access to the marketing fee funds 
generated from a Preferenced order. 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 
add NANOS to the Marketing Fee table to be assessed a $0.09 collection 
per contract, which is less than the current collection fee of $0.25 
for XSP. The Exchange notes that, like XSP, NANOS will not be eligible 
for the SCORe Program--a discount program for Retail, Non-FLEX Customer 
(``C'' origin code) volume in SPX (including SPXW), VIX, RUT, MXEA and 
MXEF (``Qualifying Classes'') available to any TPH Originating Clearing 
Firm or non-TPH Originating Clearing Firm that sign up for the 
program--but instead eligible for the Marketing Fee Program. Because 
not all Firms are registered for the SCORe Program, the Exchange 
believes that providing NANOS, like XSP, as eligible for the Marketing 
Fee Program (which automatically applies to all classes unless 
otherwise explicitly excluded) as opposed to the SCORe Program 
potentially generates more customer order flow in NANOS by allowing 
Preferenced Market-Makers to amass a pool of funds from NANOS 
transactions with which to use to incentivize any customer order flow 
provider to submit Customer orders in NANOS to the Exchange.
NANOS LMM Program
    Finally, the Exchange proposes to adopt a financial program in 
connection with NANOS options for LMMs appointed to the program. As 
proposed, the NANOS LMM Incentive Program provides that if the LMM 
appointed to the NANOS LMM Incentive Program provides continuous 
electronic quotes during Regular Trading Hours that meet or exceed the 
proposed heightened quoting standards (below) in at least 99% of the 
series 90% of the time in a given month, the LMM will receive a payment 
for that month in the amount of $15,000 (or pro-rated amount if an 
appointment begins after the first trading day of the month or ends 
prior to the last trading day of the month).\7\
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    \7\ For the month of March 2022, the Exchange proposes to apply 
the heightened quoting standard from March 14 to March 31, in light 
of the mid-month launch of NANOS options and proposal to adopt the 
heighted quoting standards. The appointed LMM will be eligible for 
the full financial payment for March 2022 if the LMM meets the 
heightened quoting standard from March 14 to March 31. The Exchange 
notes that other LMM Incentive Programs in the Fees Schedule have 
previously adopted the same mid-month application upon adopting or 
modifying the program mid-month. See e.g., Securities Exchange Act 
Release No. 87590 (November 22, 2019), 84 FR 65859 (November 29, 
2019) (SR-CBOE-2019-109).

 
------------------------------------------------------------------------
              Premium level                    Width           Size
------------------------------------------------------------------------
                      VIX Value at Prior Close <20
------------------------------------------------------------------------
$0.00-$2.00.............................           $0.28            1000
$2.01-$5.00.............................            0.32            1000
$5.01-$15.00............................            0.35             500
Greater than $15.00.....................            0.50             300
------------------------------------------------------------------------
                   VIX Value at Prior Close from 20-30
------------------------------------------------------------------------
$0.00-$2.00.............................            0.30            1000
$2.01-$5.00.............................            0.35             500
$5.01-$15.00............................            0.40             500
Greater than $15.00.....................            0.55             300
------------------------------------------------------------------------
               VIX Value at Prior Close from 30
------------------------------------------------------------------------
$0.00-$2.00.............................            0.35             500
$2.01-$5.00.............................            0.40             500
$5.01-$15.00............................            0.45             300
Greater than $15.00.....................            0.60             200
------------------------------------------------------------------------

    The Exchange notes the different sets of quoting standards are 
applicable depending on the VIX Index value at the (i.e., at the close 
of the preceding RTH session). Meeting or exceeding the heightened 
quoting standards in NANOS, as proposed, to receive the proposed 
compensation payment is optional for an LMM appointed to the Program. 
The Exchange may consider other exceptions to this quoting standard 
based on demonstrated legal or regulatory requirements or other 
mitigating circumstances. In calculating whether an LMM met the 
heightened quoting standard each month, the Exchange will exclude from 
the calculation in that month the business day in which the LMM missed 
meeting or exceeding the heightened quoting standard in the highest 
number of series. The heightened quoting requirements offered by the 
NANOS LMM Incentive Program are designed to incentivize LMMs appointed 
to the Program to provide significant liquidity in NANOS options during 
the trading day upon their listing and trading on the Exchange, which, 
in turn, would provide greater trading opportunities,

[[Page 19560]]

added market transparency and enhanced price discovery for all market 
participants in NANOS.
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 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) \10\ 
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.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ 15 U.S.C. 78f.(b)(5).
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Standard Transaction Rates and Surcharges
    The Exchange believes that the proposed amendments to the Fees 
Schedule in connection with standard transaction rates and surcharges 
for NANOS transactions are reasonable, equitable and not unfairly 
discriminatory. Specifically, the Exchange believes that it is 
reasonable to assess fees for Customer, Market-Maker, and non-Market-
Maker, non-Customer orders in NANOS that are slightly less than those 
fees for transactions in XSP options (both of which overly the Mini-S&P 
500 Index) because NANOS options have a smaller notional value given 
their multiplier of one. Moreover, the Exchange believes it is 
reasonable to exclude NANOS from the Complex Surcharge and AIM Contra 
Fee (and to apply the standard transaction fees for NANOS orders in 
lieu of the AIM Contra Fee) because these proposed surcharge exclusions 
will provide consistency between the fees assessed for orders in MRUT 
and XSP, which, like NANOS, are reduced-value index options designed to 
offer investors lower cost options to obtain the potential benefits of 
options on a broad-based index option and intended for a similar 
investor-base. Therefore, the Exchange believes it is appropriate to 
amend the Fees Schedule in a manner that generally situates fees 
assessed for orders in NANOS options with those assessed for orders in 
XSP and MRUT options.
    The Exchange believes the proposed standard transaction rates and 
exclusion from certain surcharges are equitable and not unfairly 
discriminatory because they will apply automatically and uniformly to 
all capacities as applicable (i.e., Customer, Market-Maker and non-
Market-Maker, non-Customer), in NANOS options. The Exchange also notes 
that, regarding the proposed standard transaction rate of no charge for 
Customer transactions in NANOS options, there is a history in the 
options markets of providing preferential treatment to customers and 
customer order flow attracts additional liquidity to the Exchange, 
providing market participants with more trading opportunities and 
signaling an increase in Market-Maker activity, which facilitates 
tighter spreads. This may cause an additional corresponding increase in 
order flow from other market participants, contributing overall towards 
a robust and well-balanced market ecosystem, particularly in a newly 
listed and traded product.
Fees Programs
    The Exchange believes that the proposed updates to the Fees 
Schedule in connection with the application of certain fees programs to 
transactions in NANOS options are reasonable, equitable and not 
unfairly discriminatory. Particularly, the Exchange believes it is 
reasonable to exclude transactions in NANOS options from the Liquidity 
Provider Sliding Scale, the VIP, the Break-Up Credits table, the 
Clearing TPH Fee cap, the ORS/CORS, and the Floor Broker Sliding Scale 
Rebate programs in the same manner in which transactions in XSP and 
MRUT options are currently excluded from the same programs today as the 
Exchange believes it is appropriate to update these fees programs in a 
manner that generally situates transactions in NANOS with transactions 
in XSP and MRUT, as all three index options are designed to offer 
investors lower cost options to obtain the potential benefits of 
options on a broad-based index options and are intended for a similar 
investor base. The Exchange believes that excluding NANOS transactions 
from certain fees programs is equitable and not unfairly discriminatory 
because the programs will equally not apply to, or exclude in the same 
manner, all market participants' orders in NANOS options. The Exchange 
notes that the proposed rule change does not alter any of the existing 
program rates or volume calculations, but instead, merely proposes not 
to include transactions in NANOS in those programs and volume 
calculations in the same way that transactions in XSP and MRUT options 
are not currently included.
    Additionally, the Exchange believes that including NANOS in the 
Marketing Fee Program is reasonably designed to attract additional 
NANOS order flow to the Exchange, which would increase liquidity and 
benefit all market participants. More specifically, the Exchange 
believes it is reasonable, equitable and not unfairly discriminatory to 
incentivize customer order flow providers to submit customer order flow 
in NANOS via the Marketing Fee because customer order flow benefits all 
market participants as it attracts liquidity to the Exchange by 
providing more trading opportunities. This, in turn, attracts Market-
Makers, signaling additional corresponding increase in order flow from 
other market participants, and, as a result, contributing towards a 
robust, well-balanced market ecosystem to the benefit of investors. The 
Exchange believes that assessing a collection fee of $0.09 per contract 
for NANOS orders in the Marketing Fee Program is reasonable because it 
is less than the collection fee assessed for other classes, including 
XSP, which have a higher notional value than NANOS. The Exchange 
additionally believes that providing NANOS, like XSP, as eligible for 
the Marketing Fee Program (which automatically applies) as opposed to 
the SCORe Program potentially generates more customer order flow in 
NANOS, which ultimately benefits investors, by providing an incentive 
to all customer order flow providers to submit customer orders in NANOS 
to the Exchange. The Exchange believes it is reasonable to include 
NANOs in the Marketing Fee Program along with XSP, as both NANOS and 
XSP options are options on the same underlying index--the Mini-S&P 500 
Index. The Exchange lastly believes the proposed marketing fee for 
NANOS is equitable and not unfairly discriminatory because it will 
apply equally to all applicable transactions in NANOS, in that all 
Market-Maker orders in NANOS resulting from customer orders will be 
uniformly assessed under, and otherwise a part of, the Marketing Fee 
Program.

[[Page 19561]]

NANOS LMM Program
    The Exchange believes the proposed NANOS LMM Incentive Program is 
reasonable, equitable and not unfairly discriminatory. Particularly, 
the proposed NANOS LMM Incentive Program is a reasonable financial 
incentive program because the proposed heightened quoting standards and 
rebate amount for meeting the heightened quoting standards in NANOS 
series are reasonably designed to incentivize an LMM appointed to the 
Program to meet the proposed heightened quoting standards during RTH 
for NANOS, thereby providing liquid and active markets, which 
facilitates tighter spreads, increased trading opportunities, and 
overall enhanced market quality to the benefit of all market 
participants, particularly in a newly listed and traded product on the 
Exchange during the trading day.
    The Exchange believes that the proposed heightened quoting 
standards are reasonable because they are similar to the detail and 
format (VIX Index value indicator, where applicable, corresponding 
premiums, quote widths, and sizes) of the quoting standards currently 
in place for LMM Incentive Programs for other proprietary Exchange 
products.\11\ The Exchange also believes that proposed heightened 
quoting requirements are reasonably tailored to reflect market 
characteristics of NANOS. The Exchange believes the generally smaller 
premium levels and widths appropriately reflect the lower-priced NANOS 
product. The Exchange also notes that the larger quote size 
requirements reflect NANOS smaller multiplier, but are comparatively 
``smaller'' in notional size than the quote size requirements of LMM 
Incentive Programs for other proprietary Exchange products. For 
example, a NANOS order for a size of 1000 only equates to an SPX order 
for a size of one, as NANOS options are 1/1000 the size of SPX options 
(XSP options are 1/10th the size of SPX options and, given a multiplier 
of one, NANOS are 1/100th the size of XSP options). The Exchange 
believes the proposed finer premiums, smaller quote widths and smaller 
sizes (comparatively) in the proposed heightened quoting standards for 
the NANOS LMM Incentive Program reasonably reflect what the Exchanges 
believes will be typical market characteristics in NANOS options, given 
their multiplier of one, their smaller notional value and general 
anticipated retail base, thus smaller, retail-sized orders. The 
Exchange also notes that the proposed heightened quoting requirements 
do not provide for various expiration categories which the Exchange 
believes is reasonable because it will make the proposed heightened 
quoting requirements relatively easier for appointed LMMs to meet at 
the onset of the listing and trading of NANOS, thereby incentivizing 
additional liquidity in a new product. The Exchange notes it may update 
the heightened quoting requirements in the future to accommodate expiry 
categories.
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    \11\ See Cboe Options Fees Schedule, ``MRUT LMM Incentive 
Program'', ``MSCI LMM Incentive Program'', ``GTH1 VIX/VIXW LMM 
Incentive Program'', ``GTH2 VIX/VIXW LMM Incentive Program'', ``GTH1 
SPX/SPXW LMM Incentive Program'', ``GTH2 SPX/SPXW LMM Incentive 
Program'', and ``RTH SPESG LMM Incentive Program''.
---------------------------------------------------------------------------

    The Exchange further believes the proposed heighten quoting 
requirements are also reasonably tailored to reflect then-current 
market conditions and market characteristics, as the proposed quoting 
standards that are applicable depend on the VIX Index value at the 
prior market close (i.e., at the close of the preceding RTH session). 
Spreads in SPX-based options generally widen when the market 
experiences higher volatility (i.e., the VIX Index level is higher in 
value). Therefore, to encourage LMMs to meet the proposed quoting 
standards regardless of market volatility, the proposed rule change 
adopts generally wider widths and smaller quote sizes where the market 
may be experiencing higher volatility (i.e., when the value of the VIX 
Index in the proposed VIX value categories becomes relatively higher 
compared to the closing index value from the preceding trading 
session). The Exchange notes that the quoting standards currently in 
place under the GTH1 and GTH2 VIX/VIXW and SPX/SPXW LMM Incentive 
Programs are tailored in a similar manner. Moreover, the Exchange 
believes that the proposed $15,000 monthly rebate for an appointed LMM 
that meets the proposed heightened quoting standards in NANOS in a 
month is reasonable and equitable as it equal or comparable to the 
rebates offered for other LMM Incentive Programs for other proprietary 
products.\12\ For example, the GTH1 and GTH2 LMM Incentive Programs for 
SPX/SPXW and for VIX/VIXW offer $15,000 per month for SPX and VIXW, 
respectively, in which an appointed LMM meets the given quoting 
standards.
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    \12\ See id.
---------------------------------------------------------------------------

    Finally, the Exchange believes it is equitable and not unfairly 
discriminatory to offer the financial incentive to LMMs appointed to 
the NANOS LMM Incentive Program, because it will benefit all market 
participants trading in NANOS during RTH by encouraging the appointed 
LMMs to satisfy the heightened quoting standards, which incentivizes 
continuous increased liquidity and thereby may provide more trading 
opportunities and tighter spreads. Indeed, the Exchange notes that 
these LMMs serve a crucial role in providing quotes and the opportunity 
for market participants to trade NANOS, which can lead to increased 
volume, providing for robust markets. The Exchange ultimately proposes 
to offer the NANOS LMM Incentive Program to sufficiently incentivize 
the appointed LMMs to provide key liquidity and active markets in the 
newly listed and traded NANOS options during the trading day to 
encourage liquidity, thereby protecting investors and the public 
interest. The Exchange also notes that an LMM appointed to the Program 
may undertake added costs each month to satisfy that heightened quoting 
standards (e.g., having to purchase additional logical connectivity). 
The Exchange believes the proposed program is equitable and not 
unfairly discriminatory because similar programs currently exist for 
LMMs appointed to programs in other proprietary products,\13\ and the 
proposed program will equally apply to any TPH that is appointed as an 
LMM to the NANOS LMM Incentive Program. Additionally, if an appointed 
LMM does not satisfy the heightened quoting standard in NANOS for any 
given month, then it simply will not receive the offered payment for 
that month.
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    \13\ See supra note 11.
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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 proposed NANOS 
transaction fees for the separate types of market participants will be 
assessed automatically and uniformly to all such market participants, 
i.e., all qualifying Customer orders in NANOS will be assessed the same 
amount, all Market-Maker orders in NANOS will be assessed the same 
amount, and all non-Customer, non-Market-Maker orders in NANOS will be 
assessed the same

[[Page 19562]]

amount. The Exchange again notes that there is a history in the options 
markets of providing preferential treatment to customers and, as 
described above, customer order flow tends to attract key liquidity 
from other market participants. Further, the proposed rule change will 
uniformly exclude all transactions in NANOS from certain programs and 
fees/surcharges (i.e., the AIM Contra Fee and Complex Surcharge), as it 
currently does for XSP and MRUT options, and as it does for many of the 
Exchange's other proprietary products. In addition to this, the 
proposed rule change to include NANOS in the Marketing Fee Program will 
apply equally to all applicable transactions in NANOS, in that, all 
Market-Maker orders in NANOS resulting from customer orders will be 
uniformly assessed under, and otherwise a part of, the Marketing Fee 
Program (as almost all other classes on the Exchange are). The Exchange 
again notes that XSP, which is also on option on the Mini-SPX Index, is 
currently included in the Marketing Fee Program. Overall, the proposed 
rule change is designed to increase incentive for customer order flow 
providers to submit customer order flow in a newly listed and traded 
product, which, as indicated above, contributes to a more robust market 
ecosystem to the benefit of all market participants.
    The Exchange also does not believe that the proposed LMM Incentive 
Program for NANOS options would impose any burden on intramarket 
competition because it applies to all LMMs appointed to the NANOS LMM 
Incentive Program in a uniform manner, in the same way similar programs 
apply to appointed LMMs in other proprietary products today. To the 
extent appointed LMMs receive a benefit that other market participants 
do not, these LMMs in their role as Market-Makers on the Exchange have 
different obligations and are held to different standards. For example, 
Market-Makers play a crucial role in providing active and liquid 
markets in their appointed products, especially in the newly developing 
NANOS market, thereby providing a robust market which benefits all 
market participants. Such Market-Makers also have obligations and 
regulatory requirements that other participants do not have. The 
Exchange also notes that an LMM appointed to an incentive program may 
undertake added costs each month to satisfy that heightened quoting 
standards (e.g., having to purchase additional logical connectivity). 
The Exchange also notes that the NANOS LMM Incentive Program, like the 
other LMM Incentive Programs, is designed to attract additional order 
flow to the Exchange, wherein greater liquidity benefits all market 
participants by providing more trading opportunities, tighter spreads, 
and added market transparency and price discovery, and signals to other 
market participants to direct their order flow to those markets, 
thereby contributing to robust levels of liquidity.
    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 rule changes apply only to a product exclusively listed on the 
Exchange. Additionally, the Exchange notes it operates in a highly 
competitive market. In addition to Cboe Options, TPHs have numerous 
alternative venues that they may participate on and director their 
order flow, including 15 other options exchanges, as well as off-
exchange venues, where competitive products are available for trading. 
Based on publicly available information, no single options exchange has 
more than 16% of the market share of executed volume of options 
trades.\14\ Therefore, no exchange possesses significant pricing power 
in the execution of option order flow. Moreover, the Commission has 
repeatedly expressed its preference for competition over regulatory 
intervention in determining prices, products, and services in the 
securities markets. Specifically, in Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \15\ The fact that this market is competitive 
has also long been recognized by the courts. In NetCoalition v. 
Securities and Exchange Commission, the D.C. Circuit stated as follows: 
``[n]o one disputes that competition for order flow is `fierce.' . . . 
As the SEC explained, `[i]n the U.S. national market system, buyers and 
sellers of securities, and the broker-dealers that act as their order-
routing agents, have a wide range of choices of where to route orders 
for execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .''.\16\ Accordingly, the Exchange does not believe its 
proposed changes to the incentive programs impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
---------------------------------------------------------------------------

    \14\ See Cboe Global Markets, U.S. Options Market Volume Summary 
by Month (March 14, 2022), available at http://markets.cboe.com/us/options/market_share/.
    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \16\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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 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 \17\ and paragraph (f) of Rule 19b-4 \18\ 
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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2022-014 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.


[[Page 19563]]


All submissions should refer to File Number SR-CBOE-2022-014. 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-2022-014, and should be submitted 
on or before April 25, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06987 Filed 4-1-22; 8:45 am]
BILLING CODE 8011-01-P