[Federal Register Volume 89, Number 120 (Friday, June 21, 2024)]
[Notices]
[Pages 52124-52127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13542]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100340; File No. SR-C2-2024-008]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fees Schedule

June 14, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 3, 2024, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
amend its Fees Schedule. The text of the proposed rule change is in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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, effective June 3, 
2024.
    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 17 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than approximately 14% of the 
market share.\3\ Thus, in such a low-concentrated and highly 
competitive market, no single options exchange, including the Exchange, 
possesses significant pricing power in the execution of option order 
flow. The Exchange believes that the ever-shifting market share among 
the exchanges from month to month demonstrates that market participants 
can shift order flow or discontinue to reduce use of certain categories 
of products, in response to fee changes. Accordingly, competitive 
forces constrain the Exchange's transaction fees, and market 
participants can readily trade on competing venues if they deem pricing 
levels at those other venues to be more favorable.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets U.S. Options Market Volume Summary 
by Month (May 29, 2024), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    Currently, the Exchange provides a rebate of $0.32 per contract for 
C2 Market-Maker orders AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF that 
add liquidity and are a National Best Bid or Offer (``NBBO'') Joiner or 
NBBO Setter (which orders yield fee code ``SL''). To qualify as a NBBO 
Joiner, a C2 Market-Maker order must improve the C2 Best Bid or Offer 
(``BBO'') and result in C2 joining an existing NBBO. Only the first 
order received that results in C2 BBO joining the NBBO at a new price 
level will qualify for the enhanced rebate. If C2 is at the NBBO, the 
order will not qualify. Alternatively, C2 Market-Makers may receive the 
enhanced rebate if they are a NBBO Setter. To qualify as a NBBO Setter 
and receive the enhanced rebate, a C2 Market-Maker order must set the 
NBBO. The Exchange also provides a rebate of a rebate of [sic] $0.28 
per contract for C2 Market-Maker orders AMC, AMD, AMZN, HYG, PLTR, 
TSLA, and XLF that add liquidity (which orders yield fee code ``SM''). 
Pursuant to Footnote 1 of the Fee Schedule, the Exchange also offers 
four Market-Maker Volume Tiers, which provide enhanced rebates between 
$0.30 and $0.36 per contract for qualifying Market-Maker orders 
yielding fee code SM where a TPH meets required criteria.
    The Exchange now proposes to add Footnote 2 (Market-Maker (NBBO 
Joiner or NBBO Setter) Volume Tiers), applicable to qualifying C2 
Market-Maker orders yielding fee code SL, to the Fees Schedule. Under 
proposed Footnote 2 of the Fees Schedule, the Exchange proposes to 
offer two Market-Maker (NBBO Joiner or NBBO Setter) Volume Tiers, which 
provide enhanced rebates of $0.34 and $0.36 per contract for qualifying 
Market Maker orders yielding fee code SL where a TPH meets required 
criteria.
    The Exchange proposes to add new Market-Maker (NBBO Joiner or NBBO 
Setter) Volume Tier 1 to provide a rebate of $0.34 per contract if a 
TPH has an ADAV \4\ in Market-Maker orders in SPY, AAPL, QQQ, IWM, SLV, 
AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF (i.e., yielding fee codes SM 
or SL)

[[Page 52125]]

greater than or equal to 0.85% of Average OCV.\5\ The Exchange also 
proposes to add new Market-Maker (NBBO Joiner or NBBO Setter) Volume 
Tier 2 to provide a rebate of $0.36 per contract if a TPH has an ADAV 
in Market-Maker orders in SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, AMZN, 
HYG, PLTR, TSLA, and XLF (i.e., yielding fee codes SM or SL) >= 1.05% 
of Average OCV.
---------------------------------------------------------------------------

    \4\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added, per day.
    \5\ ``OCV'' means, the total equity and ETF options volume that 
clears in the Customer range at the Options Clearing Corporation 
(``OCC'') for the month for which the fees apply, excluding volume 
on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close.
---------------------------------------------------------------------------

    The proposed changes bring the enhanced rebates offered for orders 
yielding fee code SL in-line with the enhanced rebates currently 
offered for orders yielding fee code SM. As such, the Exchange believes 
the proposed enhanced rebates for C2 Market-Makers in SPY, AAPL, QQQ, 
IWM, SLV, AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF that are NBBO 
Joiners or Setters will continue to incentivize liquidity providers to 
provide more aggressively priced liquidity in SPY, AAPL, QQQ, IWM, SLV, 
AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF options.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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) \8\ 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,\9\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    As described above, the Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. Further, the Exchange notes 
that other exchanges offer tiered product-specific pricing and/or 
incentives.\10\ The proposed changes are intended to attract order flow 
to the Exchange by continuing to offer competitive pricing while also 
creating additional incentives to providing aggressively priced 
displayed liquidity, which the Exchange believes would enhance market 
quality to the benefit of all market participants.
---------------------------------------------------------------------------

    \10\ See, e.g., MIAX Pearl Fee Schedule, Section 1 Transaction 
Rebates/Fees, which provides for product-specific pricing for SPY, 
QQQ, and IWM; and Nasdaq ISE Pricing Schedule, Section 3, Footnote 
5, which provides for tiered rebates for Market Maker SPY, QQQ, IWM 
orders that add liquidity between $0.10 and $0.26 per contract, as 
well as tired [sic] rebates for Market Maker orders in similar, 
single-name options (AMZN, META, and NVDA) between $0.15 and $0.22.
---------------------------------------------------------------------------

    The Exchange believes the proposed change to adopt volume-based 
rebate tiers for C2 Market-Maker orders in SPY, AAPL, QQQ, IWM, SLV, 
AMC, AMD, AMZN, HYG, PLTR, TSLA, and XLF that are NBBO Joiners or 
Setters (which yield fee code ``SL'') is reasonable, because such 
market participants are providing liquidity in SPY, AAPL, QQQ, IWM, 
SLV, AMC, AMD, AMZN, HYG, PLTR, TSLA and XLF options to the benefit of 
all market participants. Increased add volume order flow, particularly 
by liquidity providers, contributes to a deeper, more liquid market, 
which, in turn, provides for increased execution opportunities and thus 
overall enhanced price discovery and price improvement opportunities on 
the Exchange. As such, this benefits all market participants by 
contributing towards a robust and well-balanced market ecosystem, 
offering additional flexibility for all investors to enjoy cost 
savings, supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
    The Exchange believes its proposed change is reasonable as it is 
competitive and in line with volume-based pricing of at least one other 
exchange.\11\ Additionally, the Exchange believes that it is equitable 
and not unfairly discriminatory to offer higher rebates to Market-
Makers that add liquidity as compared to other market participants, 
because Market-Makers, unlike other market participants, take on a 
number of obligations, including quoting obligations, which other 
market participants do not have. Further, these rebates are intended to 
incentivize Market-Makers to quote and trade more on the Exchange, 
thereby providing more trading opportunities for all market 
participants. The Exchange notes that the proposed changes to Market-
Maker rebates for orders in SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, AMZN, 
HYG, PLTR, TSLA and XLF that are NBBO Joiners or Setters and that add 
liquidity will be applied equally to all Market-Makers.
---------------------------------------------------------------------------

    \11\ See, e.g., MIAX Pearl Fee Schedule, Section 1 Transaction 
Rebates/Fees, which provides for rebates ranging between $0.22 and 
$0.48 for all MIAX Pearl Market Maker orders in Penny Classes that 
add liquidity.
---------------------------------------------------------------------------

    The Exchange believes that offering the NBBO Joiner and Setter 
rebate for Market Maker orders in AMC, AMD, AMZN, HYG, PLTR, TSLA, and 
XLF is reasonable as it is designed to continue to incentivize C2 
Market Makers to improve the C2 BBO resulting in C2 joining an existing 
NBBO or setting a new NBBO to receive the rebate, ultimately 
encouraging C2 Market Makers to submit more aggressive AMC, AMD, AMZN, 
HYG, PLTR, TSLA, and XLF orders that will maintain tight spreads, 
benefitting both TPHs and public investors.
    The Exchange believes the Market-Maker Volume Tiers, as amended, 
continue to be a reasonable means to encourage Market-Makers to 
increase their order flow to specific multiply listed options on the 
Exchange (i.e., SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, AMZN, HYG, PLTR, 
TSLA, and XLF). The Exchange notes that increased Market-Maker 
activity, particularly, facilitates tighter spreads and an increase in 
overall liquidity provider activity, both of which signal additional 
corresponding increase in order flow from other market participants, 
contributing towards a robust, well-balanced market ecosystem, 
particularly in multiply listed options on the Exchange. The Exchange 
also believes that the proposed enhanced rebates offered under Tiers 1 
and 2 are reasonably based on the difficulty of satisfying the tiers' 
amended criteria and ensures the proposed rebate and thresholds 
appropriately reflect the incremental difficulty in achieving the 
Market-Maker (NBBO Joiner or NBBO Setter) Volume Tiers. The Exchange 
believes that the proposed enhanced

[[Page 52126]]

rebates are also in line with the enhanced rebates currently offered by 
another exchange for similar products.\12\
---------------------------------------------------------------------------

    \12\ See, e.g., MIAX Pearl Fee Schedule, Section 1 Transaction 
Rebates/Fees, which provides for rebates ranging between $0.22 and 
$0.48 for all MIAX Pearl Market Maker orders in Penny Classes that 
add liquidity.
---------------------------------------------------------------------------

    The Exchange believes that the Market-Maker (NBBO Joiner or NBBO 
Setter) Volume Tiers, as amended, represent an equitable allocation of 
fees and is not unfairly discriminatory because it applies uniformly to 
all Market-Makers, in that all Market-Makers have the opportunity to 
compete for and achieve the proposed tiers. The enhanced rebates will 
apply automatically and uniformly to all Market-Makers that achieve the 
proposed corresponding criteria. The Exchange notes that the tiers are 
open to any Market-Maker that satisfies the tiers' criteria. While the 
Exchange has no way of knowing whether this proposed rule change would 
definitively result in any particular Market-Maker qualifying for the 
proposed tiers, the Exchange notes that currently no Market-Makers 
would be able to achieve the criteria in Tiers 1 and 2.
    The Exchange lastly notes that it does not believe the tiers, as 
amended, will adversely impact any TPH's pricing. Rather, should a TPH 
not meet the proposed criteria, the TPH will merely not receive the 
enhanced rebates corresponding to the tiers, and will instead receive 
the standard rebate.

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. 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 change applies to all 
similarly situated TPHs equally. Specifically, the proposed change to 
adopt volume-based tier rebates for Market-Maker orders in SPY, AAPL, 
QQQ, IWM, SLV, AMC, AMD, AMZN, HYG, PLTR, TSLA and XLF that are NBBO 
Joiners or NBBO Setters and add liquidity will be applied equally to 
all Market-Makers that achieve the proposed tiers' criteria. The 
Exchange believes that the proposed change to provide volume-based tier 
rebates for Market-Maker orders in SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, 
AMZN, HYG, PLTR, TSLA, and XLF that are NBBO Joiners or NBBO Setters 
and that add liquidity will incentivize entry on the Exchange of more 
aggressive SPY, AAPL, QQQ, IWM, SLV, AMC, AMD, AMZN, HYG, PLTR, TSLA, 
and XLF orders that will maintain tighter spreads, benefitting both 
TPHs and public investors criteria and, as a result, provide for deeper 
levels of liquidity, increasing trading opportunities for other market 
participants, thus signaling further trading activity, ultimately 
incentivizing more overall order flow and improving price transparency 
on the Exchange. Finally, as noted above, the proposed Market-Maker 
(NBBO Joiner or NBBO Setter) Volume Tiers apply uniformly to all 
Market-Makers, in that all Market-Makers have the opportunity to 
compete for and achieve the tiers, as amended; the enhanced rebates, as 
amended, will apply automatically and uniformly to all Market-Makers 
that achieve the proposed corresponding criteria.
    Next, the Exchange believes the proposed rule change does not 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As previously 
discussed, the Exchange operates in a highly competitive market. TPHs 
have numerous alternative venues that they may participate on and 
director [sic] their order flow, including 16 other options exchanges 
and off-exchange venues. Additionally, the Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single options exchange has more than 14% of the market 
share.\13\ 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 exchange and 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.'' 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'. . . .''. 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.
---------------------------------------------------------------------------

    \13\ See supra note 3.
---------------------------------------------------------------------------

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 \14\ and paragraph (f) of Rule 19b-4 \15\ 
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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-C2-2024-008 on the subject line.

[[Page 52127]]

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-C2-2024-008. 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-C2-2024-008, and should be 
submitted on or before July 12, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13542 Filed 6-20-24; 8:45 am]
BILLING CODE 8011-01-P