[Federal Register Volume 88, Number 149 (Friday, August 4, 2023)]
[Notices]
[Pages 51883-51888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16621]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98025; File No. SR-CBOE-2023-035]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fees Schedule

July 31, 2023.
    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 July 18, 2023, 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 modify the fee 
for the SPX (and SPXW) Floor Market-Maker Tier Appointment Fee.\3\
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    \3\ The Exchange initially filed the proposed fee change, among 
other changes, on June 1, 2022 (SR-CBOE-2022-026). On June 10, 2022, 
the Exchange withdrew that filing and submitted SR-CBOE-2022-029. On 
August 5, 2022, the Exchange withdrew that filing and submitted SR-
CBOE-2022-042. On September 26, 2022, the Exchange withdrew that 
filing and submitted SR-CBOE-2022-050 to address the proposed fee 
change relating to the SPX/SPXW Floor Market-Maker Tier Appointment 
Fee. On November 23, 2022, the Exchange advised of its intent to 
withdraw that filing and submitted SR-CBOE-2022-060. On January 20, 
2023, the Exchange withdrew SR-CBOE-2022-060 and submitted SR-CBOE-
2023-008. On March 21, 2023, the Exchange withdrew SR-CBOE-2023-008 
and submitted SR-CBOE-2023-016. On May 19, 2023, the Exchange 
withdrew SR-CBOE-2023-016 and submitted SR-CBOE-2023-028. On July 
18, 2023, the Exchange withdrew that filing and submitted this 
proposal. Notably, no comment letters were received in connection 
with any of the foregoing rule filings.
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    By way of background, Exchange Rule 5.50(g)(2) provides that the 
Exchange may establish one or more types of tier appointments and 
Exchange Rule 5.50(g)(2)(B) provides such tier appointments are subject 
to such fees and charges the Exchange may establish. In 2010, the 
Exchange established the SPX Tier Appointment and adopted an initial 
fee of $3,000 per Market-Maker trading permit, per month.\4\ The SPX 
(and SPXW) Tier Appointment fee for Floor Market-Makers currently 
applies to any Market-Maker that executes any contracts in SPX and/or 
SPXW on the trading floor.\5\ The Exchange now seeks to increase the 
fee for the SPX/SPXW Floor Market-Maker Tier Appointment from $3,000 
per Market-Maker Floor Trading Permit to $5,000 per Market-Maker Floor 
Trading Permit.
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    \4\ See Securities Exchange Act Release No. 62386 (June 25, 
2010), 75 FR 38566 (July 2, 2010) (SR-CBOE-2010-060).
    \5\ The Exchange notes that the fee is not assessed to a Market-
Maker Floor Permit Holder who only executes SPX (including SPXW) 
options transactions as part of multi-class broad-based index spread 
transactions. See Cboe Options Fees Schedule, Market-Maker Tier 
Appointment Fees, Notes.
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    In connection with the proposed change, the Exchange also proposes 
to update Footnote 24 in the Fees Schedule, as well as remove the 
reference to Footnote 24 in the Market-Maker Tier Appointment Fee 
Table. By way of background, in June 2020, the Exchange adopted 
Footnote 24 to describe pricing changes that would apply for the 
duration of time the Exchange trading floor was being operated in a 
modified manner in connection with the COVID-19 pandemic.\6\ Among 
other changes, Footnote 24 provided that the monthly fee for the SPX/
SPXW Floor Market-Maker Tier Appointment Fee was to be increased to 
$5,000 per Trading Permit from $3,000 per Trading Permit. As the 
Exchange now proposes to maintain the $5,000 rate on a permanent basis 
(i.e., regardless of whether the Exchange is operating in a modified 
state due to COVID-19 pandemic), the Exchange proposes to eliminate the 
reference to the SPX/SPXW Floor Market-Maker Tier Appointment Fee in 
Footnote 24.\7\
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    \6\ See Securities Exchange Act Release No. 89189 (June 30, 
2020), 85 FR 40344 (July 6, 2020) (SR-CBOE-2020-058).
    \7\ The Exchange notes that since its transition to a new 
trading floor facility on June 6, 2022, it has not been operating in 
a modified manner. As such Footnote 24 (i.e., the modified fee 
changes it describes) does not currently apply.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the

[[Page 51884]]

``Act'') and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of section 6(b) of the 
Act.\8\ Specifically, the Exchange believes the proposed rule change is 
consistent with the section 6(b)(5) \9\ 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 the section 6(b)(5) \10\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Exchange also 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    The Exchange operates in a highly competitive environment. On May 
21, 2019, the SEC Division of Trading and Markets issued non-rulemaking 
fee filing guidance titled ``Staff Guidance on SRO Rule Filings 
Relating to Fees'' (``Fee Guidance''), which provided, among other 
things, that in determining whether a proposed fee is constrained by 
significant competitive forces, the Commission will consider whether 
there are reasonable substitutes for the product or service that is the 
subject of a proposed fee.\11\ As described in further detail below, 
the Exchange believes substitutable products \12\ are in fact available 
to market participants, including in the Over-the-Counter (OTC) 
markets. Indeed, there are currently 16 registered options exchanges 
that trade options, with a 17th options exchange expected to launch in 
2023. Based on publicly available information, no single options 
exchange has more than 15% of the market share as of January 19, 
2023.\13\ Further, low barriers to entry mean that new exchanges may 
rapidly and inexpensively enter the market and offer additional 
substitute platforms to further compete with the Exchange and the 
products it offers, including exclusively listed products as discussed 
further below. For example, there are 3 exchanges that have been added 
in the U.S. options markets in the last 5 years (i.e., Nasdaq MRX, LLC, 
MIAX Pearl, LLC, and MIAX Emerald LLC) and one additional options 
exchange that is expected to launch in 2023 (i.e., MEMX LLC).
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    \11\ See Chairman Jay Clayton, Statement on Division of Trading 
and Markets Staff Fee Guidance, June 12, 2019. The Fee Guidance also 
recognized that ``products need to be substantially similar but not 
identical to be substitutable.''
    \12\ A substitute, or substitutable good, in economics and 
consumer theory refers to a product or service that consumers see as 
essentially the same or similar-enough to another product. See 
https://www.investopedia.com/terms/s/substitute.asp.
    \13\ See Cboe Global Markets U.S. Options Market Volume Summary 
(March 17, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange believes that competition in the marketplace 
constrains the ability of exchanges to charge supracompetitive fees for 
access to its products exclusive to that market (``proprietary 
products''). Notably, just as there is no regulatory requirement to 
become a member of any one options exchange, there is also no 
regulatory requirement for any market participant to participate on the 
Exchange in any particular capacity, including as a Market Maker, nor 
trade any particular product. Additionally, there is no requirement 
that any Exchange create or indefinitely maintain any particular 
product.\14\ The Exchange also highlights that market participants may 
trade an exchange's proprietary products through a third-party without 
directly or indirectly connecting to the exchange. Further, market 
participants, including Market-Makers, may trade the Exchange's 
products, including proprietary products, on or off the Exchange's 
trading floor (i.e., all products are available both electronically and 
via open outcry on the Exchange's trading floor). Particularly, market 
participants are not obligated to trade on the Exchange's trading floor 
and therefore a market participant, including Market-Makers, can choose 
to trade a product electronically instead of on the Exchange's trading 
floor at any time and for any reason, including due to an assessment of 
the reasonableness of fees charged. Indeed, the Exchange notes that 
only one Market-Maker TPH trades SPX exclusively on the floor. The 
Exchange notes that nothing precludes such TPH from also deciding to 
trade SPX electronically. Rather, what products a market participant 
chooses to trade, and the manner in which they choose to do so, is 
ultimately determined by factors relevant and specific to each market 
participant, including its business model and associated costs.
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    \14\ If an option class is open for trading on another national 
securities exchange, the Exchange may delist such option class 
immediately. For proprietary products, the Exchange may determine to 
not open for trading any additional series in that option class; may 
restrict series with open interest to closing transactions, provided 
that, opening transactions by Market-Makers executed to accommodate 
closing transactions of other market participants and opening 
transactions by TPH organizations to facilitate the closing 
transactions of public customers executed as crosses pursuant to and 
in accordance with Rule 6.74(b) or (d) may be permitted; and may 
delist the option class when all series within that class have 
expired. See Cboe Rule 4.4, Interpretations and Policies .11.
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    Additionally, market participants may trade any options product, 
including proprietary products, in the unregulated Over-the-Counter 
(OTC) \15\ markets for which there is no requirement for fees related 
to those markets to be public. Given the benefits offered by trading 
options on a listed exchange, such as increased market transparency and 
heightened contra-party creditworthiness due to the role of the Options 
Clearing Corporation as issuer and guarantor, the Exchange generally 
seeks to incentivize market participants to trade options on an 
exchange, which further constrains fees that an Exchange may assess. 
Market participants may also access other exchanges to trade other 
similar or competing proprietary or multi-listed products. Alternative 
products to the Exchange's proprietary products may include other 
options products, including options on ETFs or options futures, as well 
as particular ETFs or futures. Particularly, exclusively listed SPX 
options (i.e., a proprietary product) may compete with the following 
products traded on other markets: multiply-listed SPY options (options 
on the ETF that replicates performance of the S&P 500), E-mini S&P 500 
Options (options on futures), and E-Mini S&P 500 futures (futures on 
index). Indeed, as a practical matter, investors utilize SPX and SPY 
options and their respective underlying instruments and futures to gain 
exposure to the same benchmark index: the S&P 500.
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    \15\ Derivatives that are functionally identical to the 
Exchange's exclusively-listed options, including SPX, can be traded 
on the OTC market.
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    Notably, the Commission itself has affirmed that notwithstanding 
the exclusive nature of SPX options, alternatives to this product exist 
in the marketplace. For example, in approving a PM-settled S&P 500 cash 
settled contract (``SPXPM'') on its affiliate

[[Page 51885]]

exchange Cboe C2 Exchange, Inc. (which product was later transferred to 
the Exchange), the Commission stated that it ``recognizes the potential 
impact on competition resulting from the inability of other options 
exchanges to list and trade SPXPM. In acting on this proposal, however, 
the Commission has balanced the potentially negative competitive 
effects with the countervailing positive competitive effects of C2's 
proposal. The Commission believes that the availability of SPXPM on the 
C2 exchange will enhance competition by providing investors with an 
additional investment vehicle, in a fully-electronic trading 
environment, through which investors can gain and hedge exposure to the 
S&P 500 stocks. Further, this product could offer a competitive 
alternative to other existing investment products that seek to allow 
investors to gain broad market exposure. Also, we note that it is 
possible for other exchanges to develop or license the use of a new or 
different index to compete with the S&P 500 index and seek Commission 
approval to list and trade options on such index.'' \16\
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    \16\ See Securities Exchange Act Release No. 65256 (September 2, 
2011), 76 FR 55969 (September 9, 2011) (SR-C2-2011-008). The 
Exchanges notes SPXPM was later transferred to the Exchange, where 
it currently remains listed. See Securities Exchange Act Release No. 
68888 (February 8, 2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-
2012-120).
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    The economic equivalence of SPX and SPY options was further 
acknowledged and cited as a basis for the elimination of position 
limits for SPY options across the industry not long after the 
Commission's findings above in 2011.\17\ Moreover, other exchanges have 
acknowledged that SPY options are considered to be an economic 
equivalent to SPX options.\18\
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    \17\ See, e.g., Securities Exchange Act Release No. 67936 
(September 27, 2012), 77 FR 60491 (October 3, 2012) (SR-BOX-2012-
013). See also Securities Exchange Act Release No. 67999 (October 5, 
2012), 77 FR 62295 (October 12, 2012) (SR-Phlx-2012-122).
    \18\ NYSE Euronext, on behalf of its subsidiary options 
exchanges, NYSE Arca Inc. and NYSE Amex LLC, commented on a Nasdaq 
OMX PHLX LLC (``PHLX'') proposal to increase the position limits for 
SPY options, noting ``. . .when a contract that is considered by 
many to be economically equivalent to SPY options--namely SPX 
options . . .'' See (http://www.sec.gov/comments/sr-phlx-2011-58/phlx201158-1.pdf).
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    Additionally, in connection with a proposed amendment to the 
National Market System Plan Governing the Consolidated Audit Trail 
(``CAT NMS Plan'') the Commission again discussed the existence of 
competition in the marketplace generally, and particularly for 
exchanges with unique business models.\19\ Similar to, and consistent 
with, its findings in approving SPXPM, the Commission recognized that 
while some exchanges may have a unique business model that is not 
currently offered by competitors, a competitor could create similar 
business models if demand were adequate, and if a competitor did not do 
so, the Commission believes it would be likely that new entrants would 
do so if the exchange with that unique business model was otherwise 
profitable.\20\ Accordingly, although the Exchange may have proprietary 
products not offered by other competitors, not unlike unique business 
models, a competitor could create similar products to an existing 
proprietary product if demand were adequate. As an illustration of this 
point, MIAX created its exclusive product SPIKES specifically to 
compete against VIX options, another product exclusive to the 
Exchange.\21\
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    \19\ See Securities Exchange Act Release No. 86901 (September 9, 
2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
    \20\ Id.
    \21\ MIAX has described SPIKES options as ``designed 
specifically to compete head-to-head against Cboe's proprietary 
VIX[supreg] product.'' See MIAX Press Release, SPIKES Options 
Launched on MIAX, February 21, 2019, available at https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_02212019.pdf.
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    The Commission has also acknowledged competition with respect to 
OTC products. For example, in its proposal to eliminate position and 
exercise limits for broad-based index options, the Exchange had noted 
that ``[i]nvestors who trade listed options on the [Exchange] are 
placed at a serious disadvantage in comparison to the OTC market where 
index options and other types of index based derivatives (e.g., 
forwards and swaps) are not subject to position and exercise limits. 
Member firms continue to express concern to the Exchange that position 
limits on [Exchange] products are an impediment to their business and 
that they have no choice but to move their business to the OTC market 
where position limits are not an issue.'' \22\ In approving the 
Exchange's proposal to eliminate position and exercise limits for 
certain broad-based index options, including SPX, on a two-year pilot 
basis, the Commission stated that ``the index options and other types 
of index-based derivatives (e.g., forwards and swaps) are not subject 
to position and exercise limits in the OTC market. The Commission 
believes that eliminating position and exercise limits for the SPX . . 
. options on a two-year pilot basis will better allow [the Exchange] to 
compete with the OTC market.'' \23\
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    \22\ See Securities Exchange Act Release No. 40158 (July 1, 
1998), 63 FR 37153 (July 9, 1998) (SR-CBOE-1998-23).
    \23\ See Securities Exchange Act Release No. 40969 (January 22, 
1999), 64 FR 4911 (February 1, 1999) (SR-CBOE-1998-23). The pilot 
program that was originally allowed for the elimination of position 
and exercise limits of SPX was approved on a permanent basis in 
2001. See Securities Exchange Act Release No. 44994 (November 2, 
2001), 66 FR 55722 (October 26, 2001) (SR-CBOE-2001-22).
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    The Exchange is not aware of any changes in the market that make 
the Commission's foregoing findings and assertions relating to 
competition for SPX and exclusively listed products generally any less 
true today. In fact, competitive forces within the market have resulted 
in an expansion of products. For example, in recent years, the 
exchange-traded fund (``ETF'') industry has experienced significant 
growth and diversification. ETFs that hold options have become 
increasingly popular. There are several examples of ETFs that hold SPX 
options and others that hold SPY options, as both types of options may 
offer investors different benefits. Accordingly, if a market 
participant views the Exchange's proprietary products, including SPX 
and SPXW, as more or less attractive than the competition they can and 
do switch between substantially similar products. Despite having 
economic differences, substitute products have significant similarities 
and may have characteristics that cause investors to find those 
products to beneficial to SPX options (e.g., strike availability, 
settlement, liquidity, tax reasons, product size). As such, the 
Exchange is subject to competition and does not possess anti-
competitive pricing power, even with its offering of proprietary 
products such as SPX.
    The Exchange also believes the proposed fee is reasonable as the 
Exchange believes it remains commensurate with the value of operating 
as a Market-Maker on the Exchange's trading floor in the SPX pit, which 
has the largest physical presence on the Exchange's trading floor. For 
example, the Exchange recently transitioned from its previous trading 
floor, which it had occupied since the 1980s, to a brand new, modern 
and upgraded trading floor facility. The Exchange believes customers 
continue to find value in open outcry trading and rely on the floor for 
price discovery and the deep liquidity provided by floor Market-Makers. 
The build out of a new modern trading floor reflects the Exchange's 
commitment to open outcry trading and focus on providing the best 
possible trading experience for its customers, including Market-Makers. 
For example, the new trading floor

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provides a state-of-the-art environment and technology and more 
efficient use of physical space, which the Exchange believes better 
reflects and supports the current trading environment. The Exchange 
also believes the new infrastructure provides a cost-effective, 
streamlined, and modernized approach to floor connectivity. For 
example, the new trading floor has more than 330 individual kiosks, 
equipped with top-of-the-line technology that enables floor 
participants to plug in and use their devices with greater ease and 
flexibility. The new trading floor provided by the Exchange also 
provides floor Market-Makers with more space and increased capacity to 
support additional floor-based traders on the trading floor. Moreover, 
the new trading floor is conveniently located across the street from 
the LaSalle trading floor, which resulted in minimal disruption to TPH 
floor participants, many of whom have office space nearby, including in 
the same facility in which the trading floor is located. The Exchange 
believes the new location, which was also home to the Exchange's 
original trading floor in the 1970s and early 1980s, is also able to 
support robust trading floor infrastructure as it currently hosts 
several banks, trading firms and even trading floors (i.e., trading 
floors for the Chicago Mercantile Exchange and BOX Options Market). The 
Exchange also believes the relocation to the new trading floor resulted 
in a streamlined and simplified trading floor and facility fee 
structure, as further described in the Exchange's proposal to amend 
certain facility fees in connection with the new trading floor.\24\ The 
Exchange also notes that is has not sought to pass through a number of 
costs incurred in connection with the new trading floor, including 
design, construction and other on-going maintenance costs. The Exchange 
also intends to offer free coffee and beverages on the new trading 
floor. Moreover, the Exchange has not modified many of its facilities 
fees in several years. The Exchange therefore believes the proposed 
increase in the Tier Appointment Fee is also reasonable because it 
further enables the Exchange to recoup fees associated with the costs 
of operating a modern and cutting-edge trading floor and offset and 
keep pace with increasing technology costs.
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    \24\ See Securities Exchange Act Release No. 96001 (October 6, 
2022), 87 FR 62129 (October 13, 2022) (SR-CBOE-2022-049).
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    The Exchange further believes the proposal to increase the fee is 
reasonable as the Exchange has provided further value to Market-Makers 
by expanding the suite of SPX products available to Market-Makers on 
the trading floor since 2010 when the SPX (and SPXW) Floor Market-Maker 
Tier Appointment fee was first adopted. For example, in 2013, the 
Exchange began listing SPXPM.\25\ In 2016, the Exchange began listing 
SPX Weekly options with Monday and Wednesday expirations.\26\ Most 
recently in 2022, the Exchange added SPX Weekly options with Tuesday 
and Thursday expirations.\27\ The introduction of these products means 
SPX options now have an available expiration every trading day of the 
week, thereby providing Floor Market-Makers with additional 
opportunities to trade SPX and greater trading flexibility as compared 
to 2010. Moreover, average daily volume (ADV) in SPX has increased 
nearly 30%. In particular, Market-Maker open outcry ADV in SPX has 
increased nearly 15% since 2010. Therefore, increasing the price to 
trade SPX on the trading floor is consistent with the simple law of 
supply and demand--demand to trade SPX options has increased (as 
evidenced by the ADV increase), and therefore the Exchange is proposing 
to increase the price to trade these options. Further, increased ADV, 
and specifically increased Market-Maker open ourcry in SPX provides 
increased trading opportunities for SPX Market-Makers which the 
Exchange believes is commensurate with the value of the proposed 
increase of the Tier Appointment Fee. Additionally, the notional ADV in 
SPX has increased over 380% on the trading floor since July 2010 when 
the fee was first adopted. Consistent with basic economic principles, 
if the value of a good increases, it is reasonable for the price of 
that good to also increase. In this case, the percentage the Exchange 
is proposing to increase the tier appointment fee is significantly 
lower than percentage that the notional ADV in SPX has increased. 
Moreover, given the significant increase of the notional value of one 
SPX option contract, compared to the SPX Tier Appointment Fee, it is 
actually cheaper to trade SPX options on the trading floor currently 
than it was in 2010 when the fee was first adopted. For example, on 
December 31, 2010, the S&P 500 Index closed at 1,257.64, making the 
notional value of one SPX contract $125,764 on that date. On March 20, 
2023, the S&P 500 Index closed at 3,951.57, making the notional value 
of one SPX contract $395,157 on that date. The notional value of one 
SPX option contract increased over 200% from December 31, 2010, to 
March 20, 2023, which far exceeds the percentage increase of the 
proposed fee change. That said however, based on the cost of the SPX 
Floor Market Maker Tier Appointment fee of $3,000 in 2010 and $5,000 in 
2023, it is still cheaper per SPX contract despite the higher fee 
($0.0239 ($3,000/$125,764) v. $0.0127 ($5,000/$393,157)).
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    \25\ See Securities Exchange Act Release No. 68888 (February 8, 
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120).
    \26\ See Securities Exchange Act Release No. 76909 (January 14, 
2016), 81 FR 3512 (January 21, 2016) (SR-CBOE-2015-106). See also 
Securities Exchange Act Release No. 78531 (August 10, 2016), 81 FR 
54643(August 16, 2016) (SR-CBOE-2016-146).
    \27\ See Securities Exchange Act Release No. 94682 (April 12, 
2022), 87 FR 22993 (April 18, 2022) (CBOE-2022-005).
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    To demonstrate the value the Exchange believes Marker-Makers find 
transacting with SPX on the trading floor (notwithstanding the proposed 
fee change), Market-Maker presence on the new trading floor in SPX and 
SPXW has actually increased. Particularly, as of December 30, 2022, 
there are 12 additional Market-Makers trading SPX and SPXW on the 
trading floor as compared to May 2022 (which was the month prior to the 
proposed fee change being implemented on a permanent basis and 
transition to the new trading floor).\28\ Further, in June 2022, the 
month in which the proposed fee change took effect on the new trading 
floor on a permanent basis, there were 5 additional Market-Makers 
trading SPX and SPXW on the trading Floor as compared to May 2022. 
Further, as of December 30, 2022, there are 4 additional Market-Makers 
trading SPX and SPXW on the trading floor as compared to March 2020, 
which was the last month the Exchange assessed $3,000 for the SPX and 
SPXW Floor Market Maker Tier Appointment fee. The Exchange believes the 
increasing SPX and SPXW Market-Maker presence on the trading floor 
since the last time the Exchange assessed $3,000 for the SPX and SPXW 
Floor Market Maker Tier Appointment fee (i.e., March 2020) and since 
the time the current proposal was submitted (i.e., June 2020) speaks 
not only to the value Market-Makers find in participating as a Market-
Maker in SPX and SPXW on the (new and improved) trading floor, but also 
to the reasonableness of the fee. Moreover, as established above, if a 
Market-Maker viewed trading SPX and SPXW as less attractive than 
competitive products, including those described above, they

[[Page 51887]]

can switch between such similar products and choose not to remain as a 
Market-Maker trading SPX and SPX on the trading floor. As such, the 
Exchange is subject to competition and does not possess anti-
competitive pricing power, even with its offering of proprietary 
products such as SPX.
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    \28\ As noted above, the Exchange has been assessing $5,000 for 
the SPX and SPXW Floor Market Maker Tier Appointment fee since June 
2020 as the Exchange was operating in a modified state until its 
transition to the new trading floor in June 2022, at which time the 
Exchange submitted this proposal to make such increase permanent.
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    Moreover, as noted above, market participants are not obligated to 
trade on the Exchange's trading floor and therefore a market 
participant, including Market-Makers, can choose to trade a product 
electronically instead of on the Exchange's trading floor at any time 
and for any reason, including due to an assessment of the 
reasonableness of fees charged. In particular, as of January 2023, SPX 
and SPXW open outcry volume accounted for approximately 26% of total 
SPX and SPXW volume (i.e., approximately 74% is traded electronically). 
Accordingly, Market-Makers may continue to choose to trade SPX and SPXW 
electronically should they deem fees associated with trading on the 
trading floor as unreasonable, further demonstrating that the Exchange 
is constrained from imposing unreasonable and supracompetitive fees. 
The Exchange notes this applies to all SPX Market-Makers, even a 
Market-Maker who may currently not participate electronically and only 
trades SPX in open outcry. Should any Market-Maker find the costs for 
executing SPX in open outcry unreasonable based on its business model 
and needs, such Market-Maker could instead elect to execute SPX solely 
electronically (or choose to trade other competing products). 
Accordingly, the Exchange believes that SPX Floor Market-Makers that 
continue to participate in open outcry trading find value in doing so.
    The Exchange finally believes its proposal to increase the SPX (and 
SPXW) Floor Market-Maker Tier Appointment fee is reasonable because the 
proposed amount is not significantly higher than was previously 
assessed (and is the same amount that has been assessed under Footnote 
24 for the last two years). Additionally, the Exchange believes its 
proposal to increase the fee is reasonable as the fee amount has not 
been increased since it was adopted over 12 years ago in July 2010.\29\ 
Particularly, since its adoption 13 years ago, there has been notable 
inflation. Indeed, the dollar has had an average inflation rate of 2.6% 
per year between 2010 and today, producing a cumulative price increase 
of approximately 40% inflation since 2010, when the SPX and SPXW Floor 
Market-Maker Tier Appointment was first adopted.\30\ Additionally, for 
nearly ten years, Market-Makers were only subject to the original rate 
that was adopted in 2010 (i.e., $3,000) notwithstanding an average 
inflation rate of 2.6% per year. The Exchange acknowledges its proposed 
fee exceeds 40%. However, the Exchange believes such increase is 
reasonable given many Market-Makers for nearly 10 years did not have to 
pay increased fees notwithstanding yearly inflation. For example, by 
not increasing the fee each year to correspond to the average per year 
inflation rate of 2.6%, Market-Makers trading SPX on the trading floor 
since 2011 through 2020 (when then Exchange originally increased the 
fee due to the COVID-19 pandemic) have saved nearly $10,000. Moreover, 
the Exchange historically does not increase fees every year, 
notwithstanding inflation. The Exchange therefore believes that 
proposing a fee in excess of the cumulative 40% inflation rate is still 
reasonable, especially when considered in conjunction with all of the 
additional and further rationale discussed above. The Exchange is also 
unaware of any standard that suggests any fee proposal that exceeds a 
yearly or cumulative inflation rate is unreasonable.
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    \29\ See Securities Exchange Act Release No. 62386 (June 25, 
2010), 75 FR 38566 (July 2, 2010) (SR-CBOE-2010-060).
    \30\ See https://www.officialdata.org/us/inflation/2010?amount=1.
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    The proposed change is also equitable and not unfairly 
discriminatory as it applies to all Market-Makers that trade SPX on the 
trading floor uniformly. The Exchange believes it's reasonable 
equitable and not unfairly discriminatory to increase the SPX/SPXW 
floor Market-Maker Tier Appointment fee and not the SPX/SPXW electronic 
Market-Maker Tier Appointment fee, as Floor Market-Makers are not 
subject to other costs that electronic Market-Makers are subject to. 
For example, while all Floor Market-Makers automatically have an 
appointment to trade open outcry in all classes traded on the Exchange 
and at no additional cost per appointment, electronic Market-Makers 
must select an appointment in a class (such as SPX) to make markets 
electronically and such appointments are subject to fees under the 
Market-Maker Electronic Appointments Sliding Scale.\31\
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    \31\ See Cboe Options Rules 5.50(a) and (e). See also Cboe 
Options Fees Schedule, Market-Maker EAP Appointments Sliding Scale.
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    The Exchange lastly notes that it is not required by the Exchange 
Act, nor any other rule or regulation, to undertake a cost-of-service 
or rate-making approach with respect to fee proposals. Moreover, 
Congress's intent in enacting the 1975 Amendments to the Act was to 
enable competition--rather than government order--to determine prices. 
The principal purpose of the amendments was to facilitate the creation 
of a national market system for the trading of securities. Congress 
intended that this ``national market system evolve through the 
interplay of competitive forces as unnecessary regulatory restrictions 
are removed.'' \32\ Other provisions of the Act confirm that intent. 
For example, the Act provides that an exchange must design its rules 
``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.'' \33\ Likewise, the Act grants the 
Commission authority to amend or repeal ``[t]he rules of [an] exchange 
[that] impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of this chapter.'' \34\ In short, the 
promotion of free and open competition was a core congressional 
objective in creating the national market system.\35\ Indeed, the 
Commission has historically interpreted that mandate to promote 
competitive forces to determine prices whenever compatible with a 
national market system. Accordingly, the Exchange believes it has met 
its burden to demonstrate that its proposed fee change is reasonable 
and consistent with the immediate filing process chosen by Congress, 
which created a system whereby market forces determine access fees in 
the vast majority of cases, subject to oversight only in particular 
cases of abuse or market failure. Lastly, and importantly, the Exchange 
believes that, even if it were possible as a matter of economic theory, 
cost-based pricing for the proposed fee would be so complicated that it 
could not be done practically.
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    \32\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.) 
(emphasis added).
    \33\ 15 U.S.C. 78f(b)(5).
    \34\ 15 U.S.C. 78f(8).
    \35\ See also 15 U.S.C. 78k-l(a)(1)(C)(ii) (purposes of Exchange 
Act include to promote ``fair competition among brokers and dealers, 
among exchange markets, and between exchange markets and markets 
other than exchange markets''); Order, 73 FR at 74781 (``The 
Exchange Act and its legislative history strongly support the 
Commission's reliance on competition, whenever possible, in meeting 
its regulatory responsibilities for overseeing the SROs and the 
national market system.'').
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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

[[Page 51888]]

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 changes 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 would be applied in 
the same manner to all Floor Market-Makers that trade SPX (and/or 
SPXW). As noted above, the Exchange believes it's reasonable to 
increase the SPX/SPWX Tier Appointment Fee for only Floor Market-Makers 
only as opposed to electronic Market-Makers, because electronic Market-
Makers are subject to costs Floor Market-Makers are not, such as the 
fees under Market-Maker EAP Appointments Sliding Scale.
    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 fee relating to a product 
exclusively listed on the Exchange. Additionally, the Exchange operates 
in a highly competitive market. In addition to Cboe Options, TPHs have 
numerous alternative venues that they may participate on (which, as 
described above, list products that compete with SPX options) and 
direct their order flow, including 15 other options exchanges (four of 
which also maintain physical trading floors), 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 15% of the market share of executed volume of options trades.\36\ 
Therefore, no exchange possesses significant pricing power in the 
execution of option order flow. Moreover, as discussed above, 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.'' \37\ 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' . . . .''.\38\ 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.
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    \36\ See Cboe Global Markets, U.S. Options Market Volume Summary 
by Month (January 19, 2023), available at http://markets.cboe.com/us/options/market_share/.
    \37\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \38\ 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 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 \39\ and paragraph (f) of Rule 19b-4 \40\ 
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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    \39\ 15 U.S.C. 78s(b)(3)(A).
    \40\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CBOE-2023-035 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-2023-035. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CBOE-2023-035 and should be 
submitted on or before August 25, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16621 Filed 8-3-23; 8:45 am]
BILLING CODE 8011-01-P