[Federal Register Volume 90, Number 77 (Wednesday, April 23, 2025)]
[Notices]
[Pages 17099-17102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-06914]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102883; File No. SR-CBOE-2025-028]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Increase the Options Regulatory Fee Until December 31, 2025
April 17, 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 15, 2025, 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.
---------------------------------------------------------------------------
\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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Fees Schedule relating to the Options Regulatory Fee. The
text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to increase the Options Regulatory Fee
(``ORF'') from $0.0017 per contract side to $0.0023 per contract
side,\3\ effective April 1, 2025.\4\
---------------------------------------------------------------------------
\3\ The Exchange also proposes to make nonsubstantive changes to
the rule text that the ORF fee is charged per contract side. This is
consistent with how the ORF fee has been charged and is merely a
clarification to the Fees Schedule.
\4\ The Exchange initially filed the proposed fee changes on
April 1, 2025 (SR-CBOE-2025-023). On April 15, 2025, the Exchange
withdrew that filing and submitted this proposal.
---------------------------------------------------------------------------
Background
Today, ORF is assessed by Cboe Options to each Trading Permit
Holder (``TPH'') for options transactions cleared by the TPH that are
cleared by the Options Clearing Corporation (``OCC'') in the customer
range, regardless of the exchange on which the transaction occurs.\5\
In other words, the Exchange imposes the ORF on all customer-range
transactions cleared by a TPH, even if the transactions do not take
place on the Exchange. The ORF is collected by OCC on behalf of the
Exchange from the Clearing Trading Permit Holder (``CTPH'') or non-CTPH
that ultimately clears the transaction. With respect to linkage
transactions, Cboe Options reimburses its routing broker providing
Routing Services pursuant to Cboe Options Rule 5.36 for options
regulatory fees it incurs in connection with the Routing Services it
provides.
---------------------------------------------------------------------------
\5\ The Exchange notes ORF also applies to customer-range
transactions executed during Global Trading Hours.
---------------------------------------------------------------------------
Revenue generated from ORF, when combined with all of the
Exchange's other regulatory fees and fines, is designed to recover a
material portion of the regulatory costs to the Exchange of the
supervision and regulation of TPH customer options business including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. Regulatory costs include direct regulatory
expenses and certain indirect expenses for work allocated in support of
the regulatory function. The direct expenses include in-house and
third-party service provider costs to support the day-to-day regulatory
work such as surveillances, investigations and examinations. The
indirect expenses include support from such areas as human resources,
legal, compliance, information technology, facilities and accounting.
These indirect expenses are estimated to be approximately 38% of Cboe
Options' total regulatory costs for 2025. Thus, direct expenses are
estimated to be approximately 62% of total regulatory costs for 2025.
In addition, based on Cboe Options' analysis of its regulatory work
associated with options regulation, and considering other regulatory
revenue, it is Cboe Options' practice that revenue generated from ORF
not exceed more than 75% of total annual regulatory costs. These
expectations are estimated, preliminary and may be subject to change.
Currently, and for quite some time now, Cboe Options has been
collecting significantly lower than the 75% threshold. Under the
current rate, Cboe Options forecasts for 2025 to collect closer to 43%.
Even with this proposed increase, the forecast only goes up to
approximately 54%.\6\
---------------------------------------------------------------------------
\6\ The Exchange is not looking to capture its traditional 75%
threshold at this time, since it is evaluating and considering a
change to a new ORF model.
---------------------------------------------------------------------------
Proposal for April 1, 2025
The Exchange monitors its regulatory costs and revenues at a
minimum on a semi-annual basis. If the Exchange determines regulatory
revenues exceed or are insufficient to cover a material portion of its
regulatory costs in a given year, the Exchange will adjust the ORF by
submitting a fee change filing to the Commission. Although Cboe Options
has been collecting at levels that do not cover a material portion of
its regulatory expenses, it has not raised its rate for quite some time
now but for this proposal.
The Exchange also notifies TPHs of adjustments to the ORF via an
Exchange Notice, including for the change being proposed herein.\7\
Based on the Exchange's most recent semi-annual review, the Exchange is
proposing to temporarily increase the amount of ORF that will be
collected by the Exchange from $0.0017 per contract side to $0.0023 per
contract side.\8\ The proposed increase is based on the Exchange's
estimated projections for its regulatory costs, which projections have
increased, coupled with a projected decrease in the Exchange's other
non-
[[Page 17100]]
ORF regulatory fees. Particularly, based on the Exchange's estimated
projections for its regulatory costs, the revenue generated by ORF
using the current rate, would result in projected revenue that is
insufficient to cover a material portion of its regulatory costs (i.e.,
less than 75% of total annual regulatory costs). Further, when combined
with the Exchange's projected other non-ORF regulatory fees and fines,
the revenue generated by ORF using the current rate results is
projected to result in combined revenue that is less than 100% of the
Exchange's estimated regulatory costs for the year. As noted above,
even with this rate increase, the amount collected by Cboe Options will
be significantly lower than the 75% threshold. As the Exchange has done
in the past, the Exchange will also provide the Commission confidential
details regarding the Exchange's projected regulatory revenue,
including projected revenue from ORF, along with a breakout of its
projected regulatory expenses, including both direct and indirect
allocations.
---------------------------------------------------------------------------
\7\ See Exchange Notice, C2025022804 ``Cboe C1 Options Exchanges
Regulatory Fee Update Effective April 1, 2025.''
\8\ The Exchange proposes to have an automatic sunset the
proposed fee on December 31, 2025.
---------------------------------------------------------------------------
The Exchange will continue to monitor the amount of revenue
collected from the ORF to ensure that it, in combination with its other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs.
Future Proposals
Cboe Options appreciates the evolving changes in the markets and
regulatory environment and has been evaluating its options while
considering industry and regulatory feedback. In light of this, the
Exchange has recently been reviewing its current methodologies and
practices for the assessment and collection of ORF. As a result of this
review, the Exchange plans to revamp the current process of assessing
and collecting ORF, which would be subject to, and described further
in, a future rule filing. Particularly, the Exchange anticipates moving
to a modified ORF model in which ORF would only be assessed to on-
exchange transactions. And at this this time, Cboe Options expects to
continue assessing ORF to on-exchange transactions that clear in the
customer range at OCC. Further, Cboe Options expects to continue its
current practice that revenue generated from ORF not exceed more than
75% of total annual regulatory costs. And as is Cboe Options' practice
today, revenue generated by ORF will not be used for non-regulatory
purposes.
To create real ORF reform, moving to a new ORF model that only
assesses a fee to transactions that occur on one's own options exchange
seems right. However, for a new, modified model to be truly meaningful
and fair, a rate limited to transactions on one's own exchange should
be adopted by all options exchanges to provide a consistent methodology
in assessing and collecting ORF going forward. Cboe Options is
committed to switching to this new model as soon as a consistent
framework has been established with the SEC, adopted by all the options
exchanges and necessary regulatory filings submitted. Until that time,
Cboe Options believes it's fair and reasonable to temporarily raise the
current rate under the existing model.
In light of the Exchange's anticipated proposal to revamp ORF, the
Exchange also proposes to adopt a sunset date of December 31, 2025 for
the current proposed rate of $0.0023 per contract side, at which point
the Exchange would revert back to current ORF rate of $0.0017 per
contract side. The proposed sunset date will provide time for the
Exchange to discuss its anticipated, or potential alternative, ORF
model with TPHs towards establishment of one new, unified model going
forward. The Exchange will endeavor however to implement the modified
ORF structure noted above prior to the proposed December 31 sunset date
(i.e., the existence of the sunset date of December 31, 2025 for the
proposed ORF rate would not preclude the Exchange from filing to modify
its ORF methodology prior to that date, if able).
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.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\10\ which provides that Exchange rules may provide
for the equitable allocation of reasonable dues, fees, and other
charges among its TPHs and other persons using its facilities.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \11\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes the proposed fee change is reasonable because
it would help ensure that revenue collected from the ORF, in
combination with other regulatory fees and fines, would help offset,
but not exceed, the Exchange's total regulatory costs. As discussed,
the Exchange has designed the ORF to generate revenues that would be
less than or equal to 75% of the Exchange's regulatory costs, which is
consistent with the practice across the options industry and the view
of the Commission that regulatory fees be used for regulatory purposes
and not to support the Exchange's business side. The Exchange
determined to increase ORF after its semi-annual review of its
regulatory costs and regulatory revenues, which includes revenues from
ORF and other regulatory fees and fines. When taking into account
recent options volume, coupled with the anticipated regulatory fees and
anticipated reductions in other regulatory fees, the Exchange believes
it's reasonable to increase the ORF. Particularly, the proposed change
is reasonable as it would offset the anticipated increased regulatory
costs, while still not exceeding 75% of the Exchange's total regulatory
costs. Moreover, the proposed amount is still lower than the amount of
ORF assessed on other exchanges \12\ and significantly lower than the
Exchange has assessed previously.\13\ Further, the fact that a
Consolidated Audit Trail (``CAT'') fee is in place, should not preclude
the Exchange from assessing ORF. The CAT is a repository of order,
trade and customer information that is used as the basis for an audit
trail of such activities. Like the firms, the exchanges, including Cboe
Options, also pays a CAT fee, which Cboe Options does not include in
the offset under ORF. Yes, the Exchange uses CAT data as part of its
regulatory work, but only from an audit trail perspective. ORF, on the
other hand, offsets the regulatory work the Exchange actually performs
such as surveillances, investigations, examinations, etc. In light of
these differences, its fair and reasonable to continue assessing ORF in
light of the existence of CAT and the fees associated with it.
---------------------------------------------------------------------------
\12\ See e.g., NYSE Arca Options Fees and Charges, Options
Regulatory Fee (``ORF'') and NYSE American Options Fees Schedule,
Section VII(A), which provide that ORF is assessed at a rate of
$0.0038 per contract side for each respective exchange. See also
Nasdaq PHLX, Options 7 Pricing Schedule, Section 6(D), which
provides for an ORF rate of $0.0034 per contract side.
\13\ See e.g., Securities Exchange Act Release No. 71007
(December 6, 2013), 78 FR 75653 (December 12, 2013) (SR-CBOE-2013-
117) (filing to increase ORF to $0.0095 per contract side). See also
Securities Exchange Act Release No. 76993 (January 28, 2016), 81 FR
5800 (February 3, 2016) (SR-CBOE-2016-004) (filing to increase ORF
to $0.0081 per contract side).
---------------------------------------------------------------------------
As noted above, the Exchange will also continue to monitor on at
least a semi-annual basis the amount of
[[Page 17101]]
revenue collected from the ORF, even as amended, to ensure that it, in
combination with its other regulatory fees and fines, does not exceed
the Exchange's total regulatory costs. If the Exchange determines
regulatory revenues would exceed its regulatory costs in a given year,
the Exchange will reduce the ORF by submitting a fee change filing to
the Commission.\14\
---------------------------------------------------------------------------
\14\ Consistent with Rule 2.2 (Regulatory Revenue), the Exchange
notes that should excess ORF revenue be collected prior to any
reduction in an ORF rate, such excess revenue will not be used for
nonregulatory purposes.
---------------------------------------------------------------------------
The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory in that it is charged to all TPHs on all
their transactions that clear in the customer range at the OCC. The
Exchange believes the ORF ensures fairness by assessing higher fees to
those TPHs that require more Exchange regulatory services based on the
amount of customer options business they conduct. Regulating customer
trading activity is much more labor intensive and requires greater
expenditure of human and technical resources than regulating non-
customer trading activity, which tends to be more automated and less
labor-intensive. For example, there are costs associated with main
office and branch office examinations (e.g., staff and travel
expenses), as well as investigations into customer complaints and the
terminations of Registered persons. As a result, the costs associated
with administering the customer component of the Exchange's overall
regulatory program are materially higher than the costs associated with
administering the non-customer component (e.g., TPH proprietary
transactions) of its regulatory program.\15\ Moreover, the Exchange
notes that it has broad regulatory responsibilities with respect to its
TPHs' activities, irrespective of where their transactions take place.
Many of the Exchange's surveillance programs for customer trading
activity may require the Exchange to look at activity across all
markets, such as reviews related to position limit violations and
manipulation. Indeed, the Exchange cannot effectively review for such
conduct without looking at and evaluating activity regardless of where
it transpires. In addition to its own surveillance programs, the
Exchange also works with other SROs and exchanges on intermarket
surveillance related issues. Through its participation in the
Intermarket Surveillance Group (``ISG'') \16\ the Exchange shares
information and coordinates inquiries and investigations with other
exchanges designed to address potential intermarket manipulation and
trading abuses. Accordingly, there is a strong nexus between the ORF
and the Exchange's regulatory activities with respect to its TPHs'
customer trading activity.
---------------------------------------------------------------------------
\15\ If the Exchange changes its method of funding regulation or
if circumstances otherwise change in the future, the Exchange may
decide to modify the ORF or assess a separate regulatory fee on TPH
proprietary transactions if the Exchange deems it advisable.
\16\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by cooperatively
sharing regulatory information pursuant to a written agreement
between the parties. The goal of the ISG's information sharing is to
coordinate regulatory efforts to address potential intermarket
trading abuses and manipulations.
---------------------------------------------------------------------------
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 not necessary or appropriate in
furtherance of the purposes of the Act. This proposal does not create
an unnecessary or inappropriate intra-market burden on competition
because ORF applies to all customer activity, thereby raising
regulatory revenue to offset regulatory expenses. It also supplements
the regulatory revenue derived from non-customer activity. The Exchange
notes, however, the proposed change is not designed to address any
competitive issues. Indeed, this proposal does not create an
unnecessary or inappropriate inter-market burden on competition because
it is a regulatory fee that supports regulation in furtherance of the
purposes of the Act. The Exchange is obligated to ensure that the
amount of regulatory revenue collected from the ORF, in combination
with its other regulatory fees and fines, does not exceed regulatory
costs.
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 \17\ and paragraph (f) of Rule 19b-4 \18\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2025-028 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-2025-028. 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
[[Page 17102]]
subject to copyright 4protection. All submissions should refer to file
number SR-CBOE-2025-028 and should be submitted on or before May 14,
2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06914 Filed 4-22-25; 8:45 am]
BILLING CODE 8011-01-P