[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32499-32503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08949]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100010; File No. SR-CBOE-2024-019]


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

April 22, 2024.
    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 April 10, 2024, 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

[[Page 32500]]

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.\3\ Specifically, 
the Exchange proposes to amend the Regular Trading Hours (``RTH'') XSP 
Lead Market-Makers (``LMMs'') Incentive Program (the ``Program'').
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    \3\ The Exchange initially filed the proposed fee changes on 
April 1, 2024 (SR-CBOE-2024-016). On April 2, 2024, the Exchange 
withdrew that filing and submitted SR-CBOE-2024-018. On April 10, 
2024, the Exchange withdrew that filing and submitted this proposal.
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    By way of background, the Exchange offers several LMM Incentive 
Programs which provide a rebate to Trading Permit Holders (``TPHs'') 
with LMM appointments to the respective incentive program that meet 
certain quoting standards in the applicable series in a month.\4\ The 
Exchange notes that meeting or exceeding the quoting standards in each 
of the LMM incentive program products to receive the applicable rebate 
is optional for an LMM appointed to a program. Particularly, an LMM 
appointed to an incentive program is eligible to receive the 
corresponding rebate if it satisfies the applicable quoting standards, 
which the Exchange believes encourages appointed LMMs to provide 
liquidity in the applicable class and trading session (i.e., RTH or 
Global Trading Hours). The Exchange may consider other exceptions to 
the programs' quoting standards based on demonstrated legal or 
regulatory requirements or other mitigating circumstances. In 
calculating whether an LMM appointed to an incentive program meets the 
applicable program's quoting standards each month, the Exchange 
excludes from the calculation in that month the business day in which 
the LMM missed meeting or exceeding the quoting standards in the 
highest number of the applicable series.
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    \4\ See Exchange Rule 3.55(a). In advance of the LMM Incentive 
Program effective date, the Exchange will send a notice to solicit 
applications from interested TPHs for the LMM role and will, from 
among those applications, select the program LMMs. Factors to be 
considered by the Exchange in selecting LMMs include adequacy of 
capital, experience in trading options, presence in the trading 
crowd, adherence to Exchange rules and ability to meet the 
obligations specified in Rule 5.55.
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    The Exchange proposes to amend the current Program. Currently, the 
Program provides that if an LMM appointed to the Program provides 
continuous electronic quotes during RTH that meet or exceed the 
proposed heightened quoting standards (below) in at least 95% of the 
series 93% of the time in a given month, the LMM will receive (i) a 
payment for that month in the amount of $40,000 (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) and (ii) a rebate of $0.27 
per XSP contract that is executed in RTH in Market-Maker capacity and 
adds liquidity electronically contra to non-customer capacity.
    The Exchange now proposes to amend the time requirement for the 
Program. Specifically, the Exchange proposes to update the time 
requirement to require an appointed LMM to provide continuous 
electronic quotes during RTH that meet or exceed the heightened quoting 
standards in at least 95% of the XSP series 90% of the time in a given 
month in order to receive the rebate, thereby decreasing the time 
requirement by 3%.
    Further, the Exchange proposes to amend the heightened quoting 
requirements offered by the Program. The current heightened quoting 
requirements are as follows in the table below:

                                                                          Width
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                         Moneyness *                           Expiring option      1 day      2 days to 5 days  6 days to 14 days   15 days to 35 days
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <=30:
    [>3% ITM)...............................................              $0.20        $0.25              $0.25              $0.50                 $1.00
    [3% ITM to 2% ITM)......................................               0.10         0.15               0.15               0.25                  0.75
    [2% ITM to 0.25% ITM)...................................               0.04         0.05               0.05               0.06                  0.10
    [0.25% ITM to ATM)......................................               0.02         0.03               0.04               0.05                  0.08
    [ATM to 1% OTM).........................................               0.02         0.02               0.02               0.03                  0.06
    [>1% OTM]...............................................               0.02         0.02               0.02               0.02                  0.04
VIX Value at Prior Close >30:
    [>3% ITM)...............................................               0.25         0.30               0.30               0.55                  1.05
    [3% ITM to 2% ITM)......................................               0.15         0.20               0.20               0.30                  0.80
    [2% ITM to 0.25% ITM)...................................               0.05         0.06               0.06               0.07                  0.11
    [0.25% ITM to ATM)......................................               0.03         0.04               0.05               0.06                  0.09
    [ATM to 1% OTM).........................................               0.03         0.03               0.03               0.04                  0.07
    [>1% OTM]...............................................               0.03         0.03               0.03               0.03                  0.05
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* Moneyness is calculated as 1-strike/index for calls, strike/index-1 for puts. Negative numbers are Out of the Money (``OTM'') and positive values are
  In the Money (``ITM''). A Moneyness value of zero for either calls or puts is considered At the Money (``ATM''). For example, if the index is at 400,
  the 396 call = 1-396/400 = 0.01 = 1% ITM, whereas the 396 put = 396/400-1 = -0.01 = 1% OTM.


------------------------------------------------------------------------
                                                Size (0 to 35 days to
                 Moneyness                             expiry)
------------------------------------------------------------------------
[>3% ITM)..................................                            5
[3% ITM to 2% ITM).........................                           10
[2% ITM to 0.25% ITM)......................                           15
[0.25% ITM to ATM).........................                           20
[ATM to 1% OTM)............................                           20
[>1% OTM]..................................                           20
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    The Exchange proposes to restructure the Program and adopt a new 
set of heightened quoting standards. The heightened quoting standards 
proposed for XSP options are as follows in the table below:

[[Page 32501]]



                                                                          Width
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                          Moneyness                            Expiring option      1 day      2 days to 5 days  6 days to 14 days   15 days to 35 days
--------------------------------------------------------------------------------------------------------------------------------------------------------
VIX Value at Prior Close <=30:
    [>3% ITM)...............................................              $0.20        $0.25              $0.30              $0.40                 $0.75
    [3% ITM to 2% ITM)......................................               0.10         0.13               0.20               0.25                  0.50
    [2% ITM to 0.25% ITM)...................................               0.08         0.10               0.13               0.16                  0.25
    [0.25% ITM to ATM)......................................               0.05         0.06               0.08               0.10                  0.15
    [ATM to 1% OTM).........................................               0.03         0.04               0.05               0.06                  0.10
    [>1% OTM]...............................................               0.02         0.03               0.04               0.05                  0.06
VIX Value at Prior Close >30:
    [>3% ITM)...............................................               0.30         0.40               0.50               0.60                  1.00
    [3% ITM to 2% ITM)......................................               0.15         0.20               0.25               0.30                  0.75
    [2% ITM to 0.25% ITM)...................................               0.12         0.15               0.19               0.23                  0.40
    [0.25% ITM to ATM)......................................               0.08         0.09               0.12               0.15                  0.20
    [ATM to 1% OTM).........................................               0.05         0.06               0.07               0.09                  0.10
    [>1% OTM]...............................................               0.03         0.04               0.05               0.06                  0.07
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------------------------------------------------------------------------
                                                Size (0 to 35 days to
                 Moneyness                             expiry)
------------------------------------------------------------------------
[>3% ITM)..................................                            5
[3% ITM to 2% ITM).........................                            5
[2% ITM to 0.25% ITM)......................                           10
[0.25% ITM to ATM).........................                           20
[ATM to 1% OTM)............................                           20
[>1% OTM]..................................                           20
------------------------------------------------------------------------

    The amended time requirement and proposed heightened quoting 
standards are designed to incentivize LMMs appointed to the Program to 
provide significant liquidity in XSP options during the RTH session, 
which, in turn, would provide greater trading opportunities, added 
market transparency and enhanced price discovery for all market 
participants in XSP.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ 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,\8\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes it is reasonable to decrease the time 
requirement for the Program, as the change is reasonably designed to 
slightly ease the difficulty in meeting the heightened quoting 
standards offered under the Program (for which an appointed LMM 
receives the respective rebates), which, in turn, provides increased 
incentive for LMMs appointed to the program to provide significant 
liquidity in XSP options. Such 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 the market, thereby 
contributing to robust levels of liquidity.
    Additionally, the Exchange believes that it is reasonable to amend 
the Program's heightened quoting standards, as the proposed new quoting 
requirements are overall reasonably designed to continue to encourage 
LMMs appointed to the Program to provide significant liquidity in XSP 
options, which benefits investors overall by providing more trading 
opportunities, tighter spreads, and overall enhanced market quality to 
the benefit of all market participants.
    The Exchange believes that the proposed changes to width and quote 
sizes for the Program's heightened quoting requirements eases the 
heightened quoting standards in a manner that makes it easier for 
appointed LMMs to achieve such requirements and will incentivize an 
increase in quoting activity in XSP options. Particularly, by 
increasing certain quote widths and decreasing certain quote sizes, the 
Exchange believes the proposed changes will encourage appointed LMMs to 
post more aggressive quotes in XSP options, in order to meet the 
heightened quoting standards, as amended, and receive the rebates 
offered under the incentive program, resulting in tighter spreads and 
increased liquidity to the benefits of investors. The Exchange also 
believes that the proposed width and quote sizes are reasonable because 
they remain generally aligned with the current heightened standards in 
each program, as the proposed width and quote sizes are only marginally 
changed in order to incentivize an increase in quoting activity.
    The Exchange believes that the proposed changes to the Program are 
equitable and not unfairly discriminatory. Specifically, the changes to 
the Program will apply equally to any and all TPHs with LMM

[[Page 32502]]

appointments to the Program that seek to meet the Programs' quoting 
standards in order to receive the rebates offered. The Exchange 
additionally notes that, if an LMM appointed to the Program does not 
satisfy the corresponding heightened quoting standard for any given 
month, then it simply will not receive the rebate offered by the 
Program for that month.
    Regarding the Program generally, the Exchange believes it is 
reasonable, equitable and not unfairly discriminatory to continue to 
offer financial incentives to LMMs appointed to the Program, because it 
benefits all market participants trading in XSP options during RTH. The 
incentive program encourages the appointed LMMs to satisfy the 
applicable quoting standards, which may increase liquidity and 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 XSP options, which can 
lead to increased volume, providing robust markets. The Exchange 
ultimately offers the Program, as amended, to sufficiently incentivize 
LMMs appointed to the Program to provide key liquidity and active 
markets in the XSP options during RTH and believes that the incentive 
program, as amended, will continue to encourage increased quoting to 
add liquidity in XSP options, thereby protecting investors and the 
public interest. 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).

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. First, the Exchange believes 
the proposed rule change does not impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Particularly, the proposed changes to the Program 
will apply to all appointed LMMs in a uniform manner. To the extent 
LMMs appointed to the incentive program receive a benefit that other 
market participants do not, as stated, 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, 
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 incentive programs are 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. As a 
result, the Exchange believes that the proposed change furthers the 
Commission's goal in adopting Regulation NMS of fostering competition 
among orders, which promotes ``more efficient pricing of individual 
stocks for all types of orders, large and small.'' \9\
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    \9\ See Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    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 as the Program 
applies only to transactions in a product exclusively listed on the 
Exchange. As noted above, the incentive program 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 notes that it operates in a highly competitive 
market. TPHs have numerous alternative venues that they may participate 
on and direct their order flow, including 16 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 15% of the market share.\10\ 
Therefore, no exchange possesses significant pricing power in the 
execution of option order flow. Indeed, participants can readily choose 
to send their orders to other exchanges, and, additionally off-exchange 
venues, if they deem fee levels at those other venues to be more 
favorable. 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.'' \11\ 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'. . . .''.\12\ 
Accordingly, the Exchange does not believe its proposed fee change 
imposes any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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    \10\ See Cboe Global Markets U.S. Options Market Volume Summary, 
Month-to-Date (March 26, 2024), available at https://markets.cboe.com/us/options/market_statistics/.
    \11\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \12\ See 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 \13\ and paragraph (f) of Rule 19b-4 \14\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule

[[Page 32503]]

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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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-2024-019 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-2024-019. 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-2024-019 and should be 
submitted on or before May 17, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08949 Filed 4-25-24; 8:45 am]
BILLING CODE 8011-01-P