[Federal Register Volume 90, Number 71 (Tuesday, April 15, 2025)]
[Notices]
[Pages 15738-15746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-06338]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102796; File No. SR-CboeBZX-2025-052]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt
Fees for New Logical Ports in Connection With a New Connectivity
Offering on Its Equity Options Platform
April 9, 2025.
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 4, 2025, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and
[[Page 15739]]
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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
adopt fees for new logical ports in connection with a new connectivity
offering on its equity options platform. 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 (https://www.cboe.com/us/options/regulation/rule_filings/bzx/), 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 fee schedule to adopt fees for
Unitized Logical Ports, a new connectivity offering for its equity
options platform (``BZX Options'') and adopt new Average Daily Quote
and Average Daily Order fees.\3\
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\3\ The Exchange initially submitted the proposed rule change on
August 30, 2024 and was effective September 3, 2024 (SR-CboeBZX-
2024-082). On September 13, 2024, the Exchange withdrew that filing
and submitted SR-CboeBZX-2024-088. On November 12, 2024, the
Exchange withdrew that filing and submitted SR-CboeBZX-2024-113. On
December 20, 2024, the Exchange withdrew that filing and submitted
SR-CboeBZX-2024-131. On February 3, 2025, the Exchange withdrew that
filing and submitted SR-CboeBZX-2025-016. On April 4, [sic] the
Exchange withdrew that filing and submitted this filing.
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Unitized Port Fees
By way of background, Exchange Members may interface with the
Exchange's Trading System by utilizing either the Financial Information
Exchange (``FIX'') protocol or the Binary Order Entry (``BOE'')
protocol. The Exchange further offers a variety of logical ports,\4\
which provide users of these ports with the ability within the
Exchange's System to accomplish a specific function through a
connection, such as order entry, data receipt or access to information.
For example, such ports include Logical Ports,\5\ Purge Ports,\6\ and
Ports with Bulk Quoting Capabilities \7\ (``Bulk Ports''). By way of
further background, each of these ports corresponds to a single running
order handler. Each order handler processes the messages it receives
from these ports from the connected Members. This processing includes
determining whether the message contains the required information to
enter the System, whether the message parameters satisfy port-level
(i.e., pre-trade) risk controls, and where to send that message within
the System (i.e., to which matching engine \8\). Once an order handler
completes the processing of a message, it sends that message to the
appropriate matching engine.
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\4\ See Exchange Rule 21.1 (l)(2), definition of ``logical
port.'' Logical ports include FIX and BOE ports (used for order
entry), drop logical port (which grants users the ability to receive
and/or send drop copies) and ports that are used for receipt of
certain market data feeds.
\5\ The term ``Logical Ports'' used herein shall refer to FIX
and BOE ports (used for order entry). See Cboe BZX Options Fee
Schedule, Options Logical Port Fees, ``Logical Ports'' (which
exclude Purge Port, Multicast PITCH Spin Server Port or GRP Port).
\6\ Purge Ports provide users the ability to cancel a subset (or
all) of open orders across Executing Firm ID(s) (``EFID(s)''),
Underlying symbol(s), or CustomGroupID(s), across multiple logical
ports/sessions. See Securities Exchange Act Release 79956 (February
3, 2017), 82 FR 10102 (February 9, 2017) (SR-BatsBZX-2017-05). See
also https://cdn.cboe.com/resources/membership/US_Options_BOE_Specification.pdf and https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf.
\7\ See Exchange Rule 21.1 (l)(3), definition of ``bulk port.''
Bulk Ports provide users with the ability to submit and update
multiple quote bids and offers in one message through logical ports
enabled for bulk-quoting.
\8\ A matching engine is a part of the Exchange's System that
processes options quotes and trades on a symbol-by-symbol basis.
Some matching engines will process option classes with multiple root
symbols, and other matching engines will be dedicated to one single
option root symbol (for example, options on SPY will be processed by
one single matching engine that is dedicated only to SPY). A
particular root symbol may only be assigned to a single designated
matching engine. A particular root symbol may not be assigned to
multiple matching engines.
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Historically, all order handlers connect to all matching engines.
That is, under the BOEv2 and FIX protocols, Members were able to access
all symbols from a single logical port since each port corresponds to a
single order handler that conveniently connects to all matching engines
(``convenience layer''). Although the Exchange configures the software
and hardware for its order handlers in the same manner, there can be a
natural variance in the amount of time it takes individual order
handlers to process messages of the same type under this architecture.
Factors that contribute to this differentiation in processing times
include the availability of shared resources (such as memory), which is
impacted by (among other things) then-current message rates, the number
of active symbols (i.e., classes), and recent messages for a symbol.
This natural differentiation in processing times inherently may cause
some messages to be sent from an order handler to a matching engine
ahead of other messages that the Exchange's System may have received
earlier on a different order handler.
The Exchange recently implemented a new architecture and protocol
which includes, among other things, a single gateway per matching
engine (``unitized layer''), which renders the above-described natural
variance of order handler processing irrelevant for Members that
connect to the unitized order handler.\9\ More specifically, effective
August 19, 2024, the Exchange implemented this new unitized access
architecture and a new version of its Binary Order Entry (BOE) protocol
\10\ (``BOEv3''), which also resulted in the adoption of new logical
port types (``Unitized Logical Ports''), for which the Exchange is now
seeking to establish fees.\11\ Under the new unitized BOEv3
architecture, a single BOEv3 order handler corresponds to a single
matching engine and all message traffic (including FIX port traffic)
\12\ pass through this unitized BOEv3 order handler before reaching
that order handler's corresponding matching engine. If a Member desires
to access this optional unitized layer of the BOEv3 architecture (which
it is not required to do), the Member would need to obtain a Unitized
Logical Port for each unitized BOEv3 order handler and corresponding
matching engine(s) that process the symbol(s) that Member
[[Page 15740]]
desires to trade.\13\ The three new port types that have been adopted
are: (1) BOE Unitized Logical Ports,\14\ (2) Bulk Unitized Logical
Ports,\15\ and (3) Purge Unitized Logical Ports.\16\ As noted above,
use of Unitized Logical Ports is completely voluntary, and no Member is
required, or under any regulatory obligation, to utilize them.
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\9\ See Securities Exchange Act Release 100582 (July 23, 2024),
89 FR 60958 (July 29, 2024) (SR-CboeBZX-2024-071).
\10\ The BOE protocol is a proprietary order entry protocol used
by Members to connect to the Exchange. The current version is BOEv2.
\11\ See Securities Exchange Act Release No. 100582 (July 23,
2024) 89 FR 60958 (July 29, 2024) (SR-CboeBZX-2024-071).
\12\ The Exchange decommissioned BOEv2 in March 2025.
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The Exchange proposes to establish fees for the new Unitized
Logical Ports, which can be purchased on an individual basis (i.e.,
capable of accessing a specified matching engine (``Matching Unit''))
and/or as a set (``Unitized Logical Port Set'') (i.e., will include the
total number of ports needed to connect to each available Matching
Unit). The proposed fees for Unitized Logical Ports purchased
individually and as sets are as follows:
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BOE Unitized Logical Port.............. $350/port/month.
Bulk Unitized Logical Port............. $550/port/month.
Purge Unitized Logical Port............ $400/port/month.
BOE Unitized Logical Port (Set)........ $2,500/month for 1st and 2nd
port set.
$3,000/month for 3rd-14th port
set.
$3,500/month for 15th-30th port
set.
Bulk Unitized Logical Port (Set)....... $5,500/month for 1st and 2nd
port set.
$6,000/month for 3rd-14th port
set.
$6,500/month for 15th-30th port
set.
Purge Unitized Logical Port (Set)...... $2,500/month for 1st and 2nd
port set.
$3,000/month for 3rd-14th port
set.
$3,500/month for 15th-30th port
set.
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The proposed fees for Unitized Logical Port Sets are progressive.
For example, if a User were to purchase 11 BOE Unitized Logical Port
Sets, it will be charged a total of $32,000 per month ($2,500 * 2 +
$3,000 * 9). As is the case today for existing logical ports, the
monthly fees are assessed and applied in their entirety and are not
prorated. The Exchange notes the current standard fees assessed for
existing logical ports will remain applicable and unchanged.\17\ The
proposed fees for Unitized Logical Port Sets will be assessed per set,
per Port Type. As an example, if a Member requests three BOE Unitized
Logical Port Sets, one Bulk Unitized Logical Port Set, and one Purge
Unitized Logical Port Set, the firm would be charged $8,000 ($2,500 +
$2,500 + $3,000) for the three BOE Unitized Logical Port Sets, $5,500
for the one Bulk Unitized Logical Port Set, and $2,500 for the one
Purge Unitized Logical Port Set.\18\
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\13\ Members will be able to purchase Unitized Logical Ports
individually or may purchase a ``set,'' which will provide the total
number of ports needed to connect to each available matching engine.
\14\ Similar to the Exchange's preexisting Logical Ports, the
new Unitized Logical Ports allow Members to submit orders and
quotes.
\15\ Similar to the Exchange's preexisting Bulk Ports, the new
Bulk Unitized Logical Ports allow Members to submit and update
multiple quote bids and offers in one message and are particularly
useful for Members that provide quotations in many different
options.
\16\ Similar to the Exchange's preexisting Purge Ports, the new
Purge Unitized Logical Ports are dedicated logical ports that
provide the ability to cancel/purge all open orders, or a subset
thereof, across multiple logical ports through a single cancel/purge
message. They also solely process purge messages and are designed to
assist Members, including Market Makers, in the management of, and
risk control over, their orders and quotes, particularly if the
Member is dealing with a large number of options.
\17\ For example, the Exchange currently assesses a monthly per
port fee of $750 for Logical Ports and Purge Ports. It also assesses
$1,500 per port month for the 1st and 2nd Bulk Ports and $2,500 for
the 3rd or more Bulk Ports. See Cboe BZX Options Fee Schedule,
Options Logical Port Fees.
\18\ The Exchange proposes to include this example in the Fee
Schedule to provide further clarity as to the application of the
proposed fees.
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Since the Exchange has a finite amount of capacity, it also
proposes to prescribe a maximum limit on the number of Unitized Logical
Ports that may be purchased and used on a per firm, per Matching Unit
basis. The purpose of establishing these limits is to manage the
allotment of Unitized Logical Ports in a fair and reasonable manner
while preventing the Exchange from being required to expend large
amounts of resources in order to provide an unlimited capacity to its
matching engines. The Exchange previously proposed to provide that the
two structures (i.e., individual unitized ports or unitized port sets)
can be combined for up to a maximum of 20 Unitized Logical Ports per
Member, per Matching Unit, per port type.\19\ The Exchange noted at the
time it adopted this maximum that it would continue monitoring interest
by all Members and system capacity availability with the goal of
increasing these limits to meet Members' needs if and when the demand
is there and/or the Exchange is able to accommodate it.\20\ Since then,
the Exchange has determined that it is able to accommodate an increased
cap relative to current demand and available to the Exchange's matching
engine and order handler capacity. As such, the Exchange proposes to
increase the maximum to 30 Unitized Logical Ports per Member, per
Matching Unit, per port type. As an example, a Member may request 12
BOE Unitized Logical Port Sets and 18 individual BOE Unitized Logical
Ports for Matching Unit 1, providing a total max of 30 BOE Unitized
Logical Ports on Matching Unit 1 specifically. This would result in
having 30 BOE Unitized Logical Ports on Matching Unit 1 and 12 BOE
Unitized Ports on all additional Matching Units as part of the 12 BOE
Unitized Logical Port Sets requested. Additionally, a firm may request
30 Bulk Unitized Logical Port Sets and 30 Purge Unitized Logical Port
Sets as those would constitute different port types.\21\ The Exchange
believes the proposed cap will be sufficient for the vast majority of
Members. The Exchange notes that it will continue to monitor interest
in Unitized Logical Ports and system capacity availability with the
goal of further increasing these limits to meet Members needs if and
when the demand is there, and the Exchange is able to accommodate it.
Additionally, Members will still be able to utilize the existing
logical port connectivity offerings with no maximum limit in addition
to their Unitized Logical Port allocation. As further discussed below,
the Exchange's pricing for these new Unitized Logical Ports are less
than or comparable to similar offerings from other exchanges.\22\
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\19\ See Securities Exchange Act Release 101212 (September 27,
2024), 89 FR 80614 (October 3, 2024) (SR-CboeBZX-2024-088).
\20\ Id.
\21\ The Exchange proposes to include this example in its Fee
Schedule to provide clarity as to how Unitized Logical Port fees
will be assessed. The Exchange further notes that in its prior
filing (SR-CboeBZX-2025-016), it increased the cap to 30 and noted
as such in its fee schedule; however, the Exchange will now as
include a clarifying update in its fee schedule to update the max
tier amount from 20 to 30 for consistency and clarity.
\22\ See MIAX Express Interface for Quoting and Trading Options,
MEI Interface Specification, Section 1.2 (MEI Architecture)
available at: MIAX_Express_Interface_MEI_v2.10a.pdf (miaxglobal.com)
which indicates firms can connect directly to one or more matching
engines depending on which symbols they wish to trade and states
``MIAX trading architecture is highly scalable and consists of
multiple trade matching environments (clouds). Each cloud handles
trading for all options for a set of underlying instruments'' and
provides that ``Market Maker firms can connect to one or more pre-
assigned servers on each cloud. This will require the firm to
connect to more than one cloud in order to quote in all underlying
instruments they are approved to make markets in'' See also MIAX
Emerald Options Order Management Using FIX Protocol, FIX Interface
Specification, available at https://www.miaxglobal.com/sites/default/files/page-files/FIX_Order_Interface_FOI_v2.6c.pdf. MIAX
describes its FIX Order Interface Gateway as ``a high-speed FIX
Order Interface gateway [that] conveniently routes orders to our
trading engines through a common entry point to our trading
platform.'' See https://www.miaxglobal.com/markets/us-options/miax-options/interface-specifications.
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[[Page 15741]]
Average Daily Quotes and Average Daily Order Fees
The Exchange also proposes to adopt Average Daily Order (``ADO'')
and Average Daily Quote (``ADQ'') fees. ``ADO'' represents the total
number of orders for the month, divided by the number of trading days.
``ADQ'' represents the total number of quotes for the month, divided by
the number of trading days. When measuring a Member's ADO and ADQ,
orders, quotes, cancel/replace modify orders, and quote updates which
submit a bid or offer and do not include cancels, are included. Further
ADO and ADQ will include orders and quotes submitted by a Member from
all logical port types (i.e., non-unitized logical ports and Unitized
Logical Ports). Each Member may submit up to 2,000,000 average daily
orders or up to 250,000,000 average daily quotes per calendar month
without incurring any ADO or ADQ fees. In the event that the average
number of quotes per trading day during a calendar month submitted
exceeds 250,000,000, each incremental usage of up to 20,000 average
daily quotes will incur an additional fee as set forth in the table
below. Similarly, in the event that the average number of orders per
trading day during a calendar month submitted exceeds 2,000,000, each
incremental usage of up to 1,000 average daily orders will incur an
additional ADO fee as set forth in the table below.\23\ A Member's ADO
and ADQ will be aggregated together with any affiliated Member sharing
at least 75% common ownership.
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\23\ The term ``quote'' refers to bids and offers submitted in
bulk messages. A bulk message means a single electronic message a
user submits with an M (Market-Maker) capacity to the Exchange in
which the User may enter, modify, or cancel up to an Exchange-
specified number of bids and offers. A User may submit a bulk
message through a bulk port as set forth in Exchange Rule
21.1(j)(3). See Rule 16.1 (definition of bulk message).
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Fee
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Tier 1 <=250,000,000 Tier 2 >250,000,000 Tier 3 >500,000,000 Tier 4 >1,000,000,000 Tier 5 >3,500,000,000
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ADQ fee rate per 20,000 ADQ........................................ $0.00 $0.05 $0.075 $0.10 $0.20
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Tier 1 <=2,000,000 Tier 2 >2,000,000 Tier 3 >2,500,000 Tier 4 >3,000,000 Tier 5 >3,500,000
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ADO Fee Rate per 1,000 ADO......................................... $0.00 $1.00 $1.50 $2.00 $2.50
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As an example, a Member that has 510,000,000 ADQ would subsequently
have 25,500 ``ADQ increments'' (510,000,000 ADQ/20,000 ADQ increments).
While 12,500 of the 25,500 ADQ increments are free within Tier 1,
12,500 of the ADQ increments would be fee liable at $0.050 within Tier
2, while the remaining 500 ADQ increments would be fee liable at $.075
within Tier 3, resulting in a total ADQ fee of $662.50 for that
month.\24\
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\24\ The Exchange proposes to include this example in the Fees
Schedule to provide further clarity as to the application of the
proposed fees.
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The Exchange notes that market participants with incrementally
higher ADO or ADQ have the potential residual effect of exhausting
system resources, bandwidth, and capacity. Higher ADO or ADQ may
therefore, in turn, create latency and impact other Members' ability to
receive timely executions. The proposed fee structure has multiple
thresholds, and the proposed fees are incrementally greater at higher
ADO and ADQ rates because the potential impact on exchange systems,
bandwidth and capacity becomes greater with increased ADO and ADQ
rates. As noted above, the proposal contemplates that a Member would
have to exceed the high ADO rate of 2,000,000 and a Market Maker would
have to exceed the high ADQ rate of 250,000,000 before that market
participant would be charged a fee under the proposed respective tiers.
The Exchange believes that it is in the interests of all Members and
market participants who access the Exchange to not allow other market
participants to exhaust System resources, but to encourage efficient
usage of network capacity. The Exchange also believes this proposal
(and in particular the proposed fee amounts associated with higher ADO
and ADQ) will reduce the incentive for market participants to engage in
excessive order/quote and trade activity that may require the Exchange
to otherwise increase its storage capacity and will encourage such
activity to be submitted in good faith for legitimate purposes.
The Exchange also represents that the proposed fees are not
intended to raise revenue; rather, as noted above, it is intended to
encourage efficient behavior so that market participants do not exhaust
System resources. Moreover, the Exchange intends to provide Members
with daily reports, free of charge, which will detail their order and
trade activity in order for those firms to be fully aware of all order
and trade activity they (and their affiliates) are sending to the
Exchange. This will allow Members to monitor their behavior and
determine whether it is approaching any of the ADO or ADQ thresholds
that trigger the proposed fees.
The Exchange lastly notes that other exchanges have adopted various
fee programs that assess incrementally higher fees to Members that have
incrementally higher order and/or quoting trading activity for similar
reasons.\25\
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\25\ See, e.g., Securities Exchange Act Release No. 60102 (June
11, 2009), 74 FR 29251 (June 19, 2009) (SR-NYSEArca-2009-50)
(adopting fees applicable to Members based on the number of orders
entered compared to the number of executions received in a calendar
month). It appears that Nasdaq similarly assesses a penalty charge
to its members that exceed certain ``weighted order-to-trade
ratios''. See Price List--Trading Connectivity, NASDAQ, available at
https://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2. See
also Securities Exchange Act Release No. 91406 (March 25, 2021), 86
FR 16795 (March 31, 2023) (SR-EMERALD-2021-10) (adopting an
``Excessive Quoting Fee'' to ensure that Market Makers do not over
utilize the exchange's System by sending messages to the MIAX
Emerald, to the detriment of all other Members of the exchange).
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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 15742]]
``Act'') and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\26\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \27\ 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) \28\ 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) \29\ of the
Act, which requires that Exchange rules provide for the equitable
allocation of reasonable dues, fees, and other charges among its
Members and other persons using its facilities.
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\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
\28\ Id.
\29\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposed fees are reasonable because
Unitized Logical Ports provide an optional, valuable service in that
the ports are intended to create a more consistent, deterministic
experience for messages once received within the Exchange's System
under the recently adopted unitized BOEv3 architecture. As discussed
above, the new architecture (and thereby the new Unitized Logical
Ports) was designed to create a more consistent, deterministic
experience for messages once received within the Exchange's System,
which the Exchange believes improves the overall access experience on
the Exchange and will enable future system enhancements. As noted, the
BOEv3 protocol and architecture, along with the three new corresponding
Unitized Logical Ports, are intended to reduce the natural variance of
order handler processing times for messages, and as a result reduce the
potential resulting ``reordering'' of messages when they are sent from
order handlers to matching engines. The adoption of the unitized BOEv3
structure (including the corresponding new Unitized Ports) was a
technical solution that is intended to reduce the potential of this
reordering and increase determinism.\30\ The Exchange believes the
proposed fees are also reasonable to offset costs incurred in order to
build out an entirely new unitized architecture.
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\30\ See Securities Exchange Act Release 100582 (July 23, 2024),
89 FR 60958 (July 29, 2024) (SR-CboeBZX-2024-071).
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Furthermore, the Exchange also notes that it believes the proposed
fees are similar to or less than fees assessed by other exchanges, for
analogous connections as explained in further detail below.\31\ The
Exchange notes that other exchanges that offer similar pricing for
similar connections have a comparable, or even lower, market share as
the Exchange, as detailed further below. Indeed, the Exchange has
reviewed the U.S. options market share for each of the eighteen options
markets utilizing total options contracts traded in 2025 through
February 27, 2025, as set forth in the following graph: \32\
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\31\ See e.g. MIAX Pearl Options Fee Schedule.
\32\ Market share is the percentage of volume on a particular
exchange relative to the total volume across all exchanges, and
indicates the amount of order flow directed to that exchange. High
levels of market share enhance the value of trading and ports. Total
contracts include both multi-list options and proprietary options
products. Proprietary options products are products with
intellectual property rights that are not multi-listed. The Exchange
does not currently list proprietary products.
[GRAPHIC] [TIFF OMITTED] TN15AP25.000
The Exchange (market share of 4.25%) notes that the proposed
Unitized Purge Port fee of $400 to connect to a matching engine is
lower than fees charged by at least two other exchanges with comparable
(indeed, even lower) market share, particularly by MIAX Emerald (4.05%
market share) and MIAX Pearl (2.8% market share) [sic].
[[Page 15743]]
The Exchange does note that both MIAX Emerald and MIAX Pearl offer two
purge ports for a matching engine connection at a cost of $600,\33\
while the Exchange offers the primary Unitized Purge Port as well as a
secondary Unitized Purge Port for its redundant secondary data center
ports for $400. The Exchange believes that the bulk of the value
customers derive isn't within the quantity itself of the purge ports,
but the ability to connect to the specific matching engine.\34\ For
this reason, the Exchange still believes it is better priced than MIAX
Emerald's and MIAX Pearl's comparable offerings.
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\33\ See e.g., MIAX Emerald Options Fee Schedule.
\34\ Due to the higher performance that offers higher throughput
with more deterministic outcomes for participants, the revised
architecture leads to a decreased demand in ports generally.
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Furthermore, comparing the costs of purchasing Purge Ports to
connect to all matching engines, the Exchange still comes in at a lower
cost than MIAX Pearl or MIAX Emerald. Connecting to all matching
engines on MIAX Emerald or MIAX Pearl would cost $7,200, while
connecting to all matching engines on BZX Options costs $2,500.\35\ As
noted above, while the Exchange believes the bulk of the value
customers derive is the ability to connect to specific matching
engines, and in this case, all matching engines, if a customer did want
to have two purge ports for all matching engines (in addition to the
included secondary purge ports provided), it would cost the participant
$5,000 ($2,500/set x 2)--still lower than the cost of $7,200 for two
purge ports for all matching engines that MIAX Emerald and MIAX Pearl
offer.
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\35\ The pricing amounts for MIAX Pearl and MIAX Emerald are
based off of $600 per Purge Port fee per matching engine with a
total of 12 matching engines (see
MIAX_Emerald_User_Manual_12082020.pdf and see https://www.miaxglobal.com/miax_pearl_user_manual.pdf). While the pricing
for BZX Options is based on connecting to all Matching Engines by
purchasing a set.
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While not as closely comparable, MIAX Emerald and MIAX Pearl both
offer Full Service MEI Ports (analogous to the Exchange's Bulk Port
offering) and Limited Service MEI Ports (analogous to the Exchange's
BOE Port offering) that are based on the lesser of a participant's per
class basis or percentage of total national average daily volume
measurement; for each matching engine a participant connects to (based
on their activity), they receive two Full Service MEI Ports and four
Limited Service MEI Ports.\36\ Presuming a participant is quoting up to
10 classes for MIAX Pearl or 5 classes for MIAX Emerald (the lowest
available tier for each exchange), they are connecting to fewer
matching engines than another participant who may be quoting over 100
classes (the highest tier available for both MIAX Pearl and MIAX
Emerald). In comparing the monthly cost using the pricing of the lowest
tiers for MIAX Pearl and MIAX Emerald, the Exchange presumes an
estimated comparable connection of connecting to 3 different matching
engines at a cost of $550 per Bulk Port per matching engine and $350
per BOE Port per matching engine. This equates to $7,500 (($350 * 4
Ports * 3 matching engines) + ($550 * 2 Ports * 3 matching engines) per
month for BZX Options, and $5,000 per month for both MIAX Pearl and
Emerald. For the highest tier, the Exchange presumes that if a
participant was quoting over 100 classes, they are likely connecting to
all matching engines. In this case, it costs a participant $12,000 per
month for MIAX Pearl, $20,500 per month for MIAX Emerald, and $22,000
($5,500 * 2 Bulk Sets) + ($2,500 * 2 BOE Sets (Tier 1)) + ($3,000 * 2
BOE Sets (Tier 2)) per month for BZX Options to connect to all matching
engines.
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\36\ See e.g., MIAX Pearl Options Fee Schedule.
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While the Exchange is priced higher in these specific examples, it
again believes the value comes from the ability to connect to
additional matching engines as opposed to the quantity of ports itself
and participants of the Exchange are able to determine their number of
desired ports as opposed to having a set package based on their
Exchange activity. For example, a participant of BZX Options can have
similar matching engine connectivity to the lowest tier of MIAX Emerald
or MIAX Pearl by connecting to three matching engines (using the same
presumed number as above) by purchasing three Bulk Ports for a cost of
$1,650 per month, substantially less than the fixed costs of $5,000 per
month of MIAX Emerald and MIAX Pearl. Additionally, a participant on
BZX Options is able to connect to all matching engines for a price of
$5,500 per month by purchasing a Bulk Set as opposed to the fixed cost
of MIAX Emerald and MIAX Pearl at $20,000 per month and $12,000 per
month, respectively. Furthermore, MIAX Emerald does allow participants
to purchase additional Limited Service ports at a price of $420 per
month, higher than the Exchange's comparable offering of $350 per month
for a BOE port. While it is challenging to compare the exact pricing on
these products, the Exchange believes that it is priced competitively,
if not lower than MIAX Pearl and MIAX Emerald.
The Exchange also emphasizes that the use of the Unitized Logical
Ports is not necessary for trading on the Exchange and, as noted above,
is entirely optional. Users can also continue to access the Exchange
through existing logical port offerings at existing rates. It is a
Member's specific business needs that will drive its decision whether
to use Unitized Logical Ports in lieu of, or in addition to, existing
logical ports (or, as emphasized, not use them at all). If a User finds
little benefit in having these ports based on its business model and
trading strategies, or determines the Unitized Logical ports are not
cost-efficient for its needs, or does not provide sufficient value to
the firm, such User may continue connecting to the Exchange in the
manner it does today, unchanged. Indeed, the Exchange notes that since
the adoption of Unitized Logical Ports on August 19, only approximately
27% of logical ports, bulk ports and purge ports being used are
Unitized Logical Ports and approximately 73% are the preexisting
Logical Ports, Bulk Ports and Purge Ports. Moreover, the Exchange
believes that providing Members the option of purchasing Unitized
Logical Ports individually or in sets provides Members further
flexibility and an opportunity for cost savings for those Members that
wish to only trade a subset of classes. The Exchange has seen firms
take advantage of individually priced Unitized Logical Ports when their
needs do not require connectivity to all matching engines--further
allowing its Members to pay reduced fees relative to a Unitized Logical
Port set.
The Exchange also believes that the proposed Unitized Logical Port
fees are equitable and not unfairly discriminatory because they
continue to be assessed uniformly to similarly situated users in that
all Users who choose to purchase Unitized Logical Ports will be subject
to the same proposed tiered fee schedule. Moreover, Members purchasing
Unitized Logical Ports will only do so if they find a benefit and
sufficient value in such ports as, all Members can otherwise continue
to use the preexisting logical connectivity options. As such, Members
can choose whether or not to purchase Unitized Logical Ports based on
their respective business needs.
The proposed ascending tier structure for Unitized Logical Port
Sets is reasonable, equitable and not unfairly discriminatory as it's
designed to encourage market participants to be efficient with their
respective Unitized Logical Port usage. It also is designed so that
Members that use a higher allotment of the Exchange's system resources
pay higher rates, rather than placing that burden on market
participants that have more modest
[[Page 15744]]
needs. The Exchange believes the proposed ascending fee structure is
therefore another appropriate means, in conjunction with an established
Unitized Logical Port limit, to manage this finite resource (system
capacity) and ensure its apportioned fairly. Furthermore, the Exchange
already assesses higher fees to those that consume more Exchange
resources for the existing non-Unitized Bulk Ports.\37\ The proposed
limit on Unitized Logical Ports is also reasonable, equitable and not
unfairly discriminatory as the Exchange believes that it is in the
interests of all Members and market participants who access the
Exchange to not allow Members to exhaust System resources, but to
encourage efficient usage of network capacity. The Exchange also notes
that the new BOEv3 unitized architecture is subject to software
limitations on the number of sessions that can be created on any one
unitized process. Consideration was given to this limitation as well as
to the amount of ports firms had indicated they would need prior to the
implementation of Unitized Logical Ports.
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\37\ See Cboe U.S. Options Fees Schedule, BZX Options, Options
Logical Port Fees, Ports with Bulk Quoting Capabilities.
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The Exchange believes the proposed ADO and ADQ fees are reasonable
as Members that do not exceed the high thresholds of 2,000,000 ADO and
250,000,000 ADQ will not be charged any fee under the proposed tiers.
The Exchange notes that in establishing the proposed thresholds, it
evaluated average ADO and ADQ rates over several months and the
thresholds were designed to protect the Exchange's Matching Engines
from being adversely impacted from sustained and excessive orders/
quotes throughout the course of a given month. The ADQ thresholds are
also designed to ensure Market Makers quoting activity, which acts as
important source of liquidity, is not impeded by the proposal.\38\ The
Exchange believes it's reasonable, equitable and not unfairly
discriminatory to assess higher fees when a Member has higher ADO and
ADQ rates because the potential impact on exchange systems, bandwidth
and capacity becomes greater with increased ADO and ADQ rates. The
Exchange believes the proposed fee amounts are reasonable as the
Exchange believes them to be commensurate with the proposed thresholds.
Particularly, the proposed fee amounts that correspond to higher ADO
and ADQ rates are designed to incentivize Members to reduce excessive
order and quoting trade activity that the Exchange believes can be
detrimental to all market participants at those levels and encourage
such activity to be made in good faith and for legitimate purposes. As
noted above, the Exchange believes that it is in the interests of all
Members and market participants who access the Exchange to not allow
Members to exhaust System resources, but to encourage efficient usage
of network capacity. The Exchange therefore also believes that the
proposed fees appropriately reflect the benefits to different firms of
being able to send orders and quotes into the Exchange's System and
also believes the proposed fees are one method of facilitating the
Commission's goal of ensuring that critical market infrastructure has
``levels of capacity, integrity, resiliency, availability, and security
adequate to maintain their operational capability and promote the
maintenance of fair and orderly markets.'' \39\
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\38\ Since the implementation of the proposal on September 3,
2024, the Exchange notes that it has not received any feedback from
Market Maker participants that the proposal has impeded their
ability to meet their quoting obligations.
\39\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR 72251 (December 5, 2014) (File No. S7-01-13)
(Regulation SCI Adopting Release).
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The Exchange believes adopting the proposed ADO and ADQ fees are
reasonable as unfettered usage of System capacity and network resource
consumption can have a detrimental effect on all market participants
who access and use the Exchange. As discussed above, high ADO and ADQ
rates may adversely impact system resources, bandwidth, and capacity
which may, in turn, create latency and impact other Members' ability to
receive timely executions. The Exchange believes the proposed fees are
therefore reasonable as they are designed to focus on activity that is
truly disproportionate while fairly allocating costs.
Further, the Exchange believes that the proposed ADO and ADQ fees
are equitable and not unfairly discriminatory because they will be
assessed uniformly to similarly situated users in that all Members that
exceed the thresholds in connection with ADO and ADQ will be assessed
the proposed ADO and ADQ rates. Regarding ADO an ADQ, no market
participant is assessed any fees unless it exceeds the proposed
thresholds. As noted above, the Exchange believes the proposed ADO and
ADQ thresholds (i.e., 2,000,000 ADO and 250,000,000 ADQ) are
appropriately high rates respectively, such that the Exchange expects
the vast majority of Members to not exceed them. While the Exchange has
no way of predicting with certainty how the proposed changes will
impact Member activity, based on trading activity from the prior months
the Exchange would expect that, absent any changes to Member behavior,
all Members would fall within proposed ADO Tier 1 (and thus not be
subject to any new fees) and approximately 74% of Members would fall
within proposed ADQ Tier 1 (and thus also not be subject to any new
fees). With respect to the remaining Members (approximately 26%) that
would exceed the ADQ Tier 1 threshold based on current activity, the
Exchange would anticipate, absent any change in behavior, approximately
3 Members to fall within Tier 2, approximately 6 Members to fall within
Tier 3, approximately 3 Members to fall within Tier [sic] and no
Members to fall within Tier 5. Notwithstanding this impact, the
Exchange believes that Market Makers are able to continue providing
important liquidity to the Exchange and meet their quoting obligations
[sic].
The Exchange believes it's equitable and not unfairly
discriminatory to assess incrementally higher fees to Members that have
higher ADO and ADQ rates because the potential impact on exchange
systems, bandwidth and capacity becomes greater with increased ADO and
ADQ. The Exchange also believes it's equitable and not unfairly
discriminatory to aggregate Members trading activity with any
affiliated Member sharing at least 75% common ownership in order to
prevent members from shifting their order flow or quoting activity to
other affiliates in order to circumvent the proposed fees.
The Exchange lastly believes that its proposal is reasonable,
equitably allocated and not unfairly discriminatory because it is not
intended to raise revenue for the Exchange; rather, it is intended to
encourage efficient behavior so that Members do not exhaust System
resources. Moreover, as noted above, competing options exchanges
similarly assess fees to deter Members from over utilizing the
exchange's System by having excessive order and/or quoting trading
activity.\40\
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\40\ See supra note 20.
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The Exchange finally 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. The Exchange is only one of
18 options exchanges which market participants may direct their order
flow and/or
[[Page 15745]]
participate on, and it represents a small percentage of the overall
market.\41\
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\41\ See Cboe Global Markets, U.S. Options Market Volume
Summary, Month-to-Date (August 27, 2024), available at https://www.cboe.com/us/options/market_statistics/ which reflects the
Exchange representing only 3.3% of total market share.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change to
adopt fees for Unitized Logical Ports will impose any burden on
intramarket competition that is not necessary in furtherance of the
purposes of the Act because the proposed fees for will apply equally to
all similarly situated Members. As discussed above, Unitized Logical
Ports are optional and Members may choose to utilize Unitized Logical
Ports, or not, based on their views of the additional benefits and
added value provided by these ports. The Exchange believes the proposed
fees will be assessed proportionately to the potential value or benefit
received by Members with a greater number of Unitized Logical Ports and
notes that Members may determine to cease using Unitized Logical Ports.
As discussed, Members can also continue to access the Exchange through
existing Logical Ports, which fees are not changing.
Similarly, the Exchange does not believe that the proposed rule
change to adopt ADO and ADQ fees will impose any burden on intramarket
competition that is not necessary in furtherance of the purposes of the
Act because such fees will apply equally to all similarly situated
Members. Particularly, the proposed fees apply uniformly to all
Members, in that any Member who exceeds the ADO and/or ADQ Tier 1
thresholds will be subject to a fee under the proposed corresponding
tiers. The Exchange believes that the proposed change neither favors
nor penalizes one or more categories of market participants in a manner
that would impose an undue burden on competition. Rather, the proposal
seeks to benefit all market participants by encouraging the efficient
utilization of the Exchange's network while taking into account the
important liquidity provided by its Members. As discussed above
potential impact on exchange systems, bandwidth and capacity becomes
greater with increased ADO and ADQ rates. The Exchange also anticipates
that the vast majority of Members on the Exchange will not be subject
to any fees under the proposed tiers. Accordingly, the Exchange
believes that the proposed ADO and ADQ fees do not favor certain
categories of market participants in a manner that would impose a
burden on competition.
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,
including competition for exchange memberships. Market Participants
have numerous alternative venues that they may participate on,
including 17 other options exchanges (including 3 other non-Cboe
options exchanges), as well as off-exchange venues, where competitive
products are available for trading. Indeed, participants can readily
choose to submit their order flow 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.'' \42\ 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'. . . .''.\43\
Accordingly, the Exchange does not believe its proposed change imposes
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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\42\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\43\ 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 \44\ and paragraph (f) of Rule 19b-4 \45\
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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\44\ 15 U.S.C. 78s(b)(3)(A).
\45\ 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-CboeBZX-2025-052 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-CboeBZX-2025-052. 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
[[Page 15746]]
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-CboeBZX-2025-052 and should be submitted on or before May 6, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06338 Filed 4-14-25; 8:45 am]
BILLING CODE 8011-01-P