[Federal Register Volume 90, Number 96 (Tuesday, May 20, 2025)]
[Notices]
[Pages 21525-21528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-08924]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103040; File No. SR-CBOE-2025-033]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Implement an Excessive Mass Cancel and Purge Fee for SPXW
May 14, 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 May 1, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to implement an Excessive Mass Cancel and Purge Fee for SPXW. The text
of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fee Schedule to adopt an
Excessive Mass Cancel and Purge Fee for SPXW (the ``Fee''). The
proposed Fee will be charged to market participants registered as
Market Makers on Cboe based on a Market Maker's mass cancel \3\ and
purge \4\ activity, relative to the Market Maker's volume added, in
SPXW during Regular Trading Hours (9:30 a.m. EST-4:15 p.m. EST).\5\ The
Market Maker's volumes in both its mass cancel and purge activity as
well as its volume added will be combined with any of its
Affiliates.\6\ The Fee will be calculated on a daily basis and will be
assessed to Market Maker's at the end of the month. The Fee is
calculated as follows: (i) all quotes and orders for SPXW cancelled via
mass cancels or purges sent to the Exchange by the Market Maker and its
Affiliate are added together (the ``Total Mass Cancels and Purges'') to
determine the Daily Charge based on the below Table 1 and (ii) the
Daily Charge is then multiplied by the Daily Multiplier that is found
by dividing the Total Mass Cancel and Purge Count by the daily simple
electronic non-auction volume added in SPXW which excludes AIM orders
and responses to complex quote requests by the Market Maker and its
Affiliate (``SPXW MM Add Volume'') and is based on the below Table 2.
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\3\ The Mass Cancel feature decreases workflow and saves time
when multiple orders need to be canceled. With Mass Cancel, all
orders on a specific session that are associated to a specific
underlying symbol can be canceled using a single BOE or FIX message.
See Cboe US Options Exchange Risk Management Tools.
\4\ Purge messages provide TPHs the ability to submit a
cancelation for all open orders, or a subset thereof, across
multiple sessions under the same Firm ID and/or more granular levels
of EFID(s), Underlyer(s), or CustomGroupID(s). Purge requests are
initiated by sending a single message over an individual (FIX or
BOE) Purge Port, per Exchange. See https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf.
\5\ See Rule 5.1(b).
\6\ Affiliate is defined as having at least 75% common ownership
with the Market Maker as reflected in each entity's Form BD,
Schedule A. The Exchange proposes to add this definition to its Fee
Schedule.
Table 1
------------------------------------------------------------------------
Total mass cancels
Tier and purges Daily charge
------------------------------------------------------------------------
Tier 1........................ >= 75,000,000 <= $3,000
149,999,999.
Tier 2........................ >= 150,000,000 <= 10,000
349,999,999.
Tier 3........................ >= 350,000,000 <= 30,000
999,999,999.
Tier 4........................ >= 1,000,000,000..... 50,000
------------------------------------------------------------------------
Table 2
------------------------------------------------------------------------
Total mass cancels
and purges to SPXW MM
Tier simple add volume Daily multiplier
ratio
------------------------------------------------------------------------
Tier 1........................ 0 <= 100............. 0.00
Tier 2........................ > 100 <= 500......... 0.30
Tier 3........................ > 500 <= 3,000....... 1.00
[[Page 21526]]
Tier 4........................ > 3,000.............. 1.50
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For example, a Market Maker has 150,000,000 Total Mass Cancels and
Purges on a particular day when the Market Maker also added 30,000 SPXW
contracts through the simple electronic order book. The Market Maker's
Daily Charge is $10,000, as their Total Mass Cancel and Purge Volume is
between 150,000,000 and 349,000,000. The Total Mass Cance and Purge
Volume (150,000,000) divided by the volume added (30,000) is 5,000,
which is greater than 3,000 and makes the Daily Charge Multiplier 1.50.
Their $10,000 Daily Charge multiplied by their 1.50 Daily Charge
Multiplier, makes the Market Maker's Fee $15,000 for the day.
The Exchange notes that market participants with incrementally
higher mass cancel and purge volumes have the potential residual effect
of exhausting System resources, bandwidth, and capacity. Higher mass
cancel and purge volumes may therefore, in turn, create latency and
impact other market participants' ability to receive timely executions.
In fact, the Exchange has recently seen an unprecedented increase in
mass cancel and purge volumes in SPXW specifically. As a result, the
Exchange has noticed increased strain on its System, particularly, as
it relates to activity in SPXW. With this in mind, the Exchange has
proposed this fee specifically for activity in SPXW in order to
encourage more efficient behavior among its Market Makers as it relates
to their mass cancel and purge activity.
The proposed fee structure has multiple thresholds, and the
proposed fees are incrementally greater at higher mass cancel and purge
rates because the potential impact on Exchange Systems, bandwidth and
capacity becomes greater with increased mass cancel and purge rates.
The proposal contemplates that a Market Maker would have to both (i)
exceed the high Total Mass Cancel and Purge Count of 75,000,000 and
(ii) have a Total Mass Cancel and Purge Count to Add Volume Ratio of
over 100 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 market participants who access the Exchange to not
allow other market participants to exhaust System resources, but to
encourage efficient usage of network and System capacity. The Exchange
also believes this proposal (and in particular the proposed fee amounts
associated with higher mass cancel and purge counts without adequate
added volume) will reduce the incentive for market participants to
engage in excessive mass cancellation and purge activity that 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. This is demonstrated by the Exchange (i) targeting
the offending behavior and (ii) limiting this to only be for SPXW
(where the Exchange is noticing inefficient use of the System).
Moreover, the Exchange intends to provide Market Makers with daily
reports, free of charge, which will detail their activity in order for
those firms to be fully aware of all mass cancel and purge activity
they (and their Affiliates) are sending to the Exchange. This will
allow Market Makers to monitor their behavior and determine whether it
needs to change its behavior moving forward to avoid triggering the
proposed fees.
The Exchange lastly notes that other exchanges have adopted various
fee programs that assess incrementally higher fees to members in order
to encourage efficient messaging and behavior on the exchange.\7\
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\7\ 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 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). See also Securities
Exchange Act Release No. 97262 (March 29, 2023), 88 FR 22509 (April
13, 2023) (SR-CboeEDGX-2023-023) (adopting fees applicable to Market
Makers based on the number of orders (including modification
messages) entered compared to the number of orders traded in a
calendar month).
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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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with Section 6(b)(4) \11\ of the Act, which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its TPHs and other
persons using its facilities.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
\11\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposed fees are reasonable as Market
Makers that do not both (i) exceed the high Total Mass Cancel and Purge
Count of 75,000,000 and (ii) have a Total Mass Cancel and Purge Count
to Add Volume Ratio of over 100 will not be charged any fee under the
proposed tiers. The Exchange notes that in establishing the proposed
thresholds, it evaluated average mass cancel and purge rates over
several months during the recent volatile trading periods and the
thresholds were designed to protect the Exchange's Matching Engines
from being adversely impacted from sustained and excessive mass cancels
and purges through the course of a given
[[Page 21527]]
day as well as throughout the course of the month. The Exchange
believes it's reasonable, equitable and not unfairly discriminatory to
assess higher fees when a Market Maker has higher mass cancel and purge
rates relative to their volume added because the potential impact on
Exchange Systems, bandwidth and capacity becomes greater with increased
mass cancel and purge 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 mass cancel and purge rates are designed to
incentivize Market Makers to reduce excessive mass cancel and purge
activity that the Exchange believes can be detrimental to all market
participants at the levels outlined 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 Market Makers and
market participants who access the Exchange to not allow Market Makers
to exhaust System resources, but to encourage efficient usage of
network and System capacity. The Exchange therefore also believes that
the proposed fees appropriately reflect the benefits to different firms
of being able to send mass cancels and purges into the Exchange's
System and also believes the proposed Fee is 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.'' \12\
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\12\ 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 Fee is 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 mass cancel and purge rates
may adversely impact System resources, bandwidth, and capacity which
may, in turn, create latency and impact other market participants'
ability to receive timely executions. The Exchange believes the
proposed Fee is therefore reasonable as they are designed to focus on
activity that is truly disproportionate while fairly allocating fees to
disincentivize the adverse behavior.
Further, the Exchange believes that the proposed Fee is equitable
and not unfairly discriminatory because it will be assessed uniformly
to similarly situated users in that all Market Makers that exceed the
thresholds in connection with the Fee will be assessed the proposed
rates. Regarding mass cancel messages and purge messages, no market
participant is assessed any fees unless it exceeds the proposed
thresholds. As noted above, the Exchange believes the proposed
thresholds are appropriately high rates and have been set out given the
volatile market conditions recently observed. The Exchange also
believes it's equitable and not unfairly discriminatory to only assess
the proposed fees to Market Makers because only Market Makers have
these high levels of mass cancel and purge activity. The Exchange also
believes it's equitable and not unfairly discriminatory to aggregate a
Market Maker's order flow with its Affiliate even if such affiliated
TPH is not a Market Maker in order to prevent Market Makers from
shifting their order flow and trading activity to their non-Market
Maker Affiliate in order to circumvent the proposed fees.
The Exchange believes it's equitable and not unfairly
discriminatory to assess incrementally higher fees to Members that have
higher mass cancel and purge rates because the potential impact on
Exchange Systems, bandwidth and capacity becomes greater with increased
mass cancels and purge messages. As noted above, the steep increase in
this behavior that has been observed in recent months has taken up
extra resources on the Exchange's System.
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. Specifically, the Exchange is limiting this to the offending
behavior (mass cancels and purges) and to the specific asset class
effected. Moreover, as noted above, competing options exchanges
similarly assess fees to deter Members from over utilizing the
exchange's System by introducing fees that deter inefficient behavior
from its market participants.\13\
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\13\ See supra note 10.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Similarly, the Exchange does
not believe that the proposed rule change to adopt the Fee 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 Market Makers. Particularly, the
proposed Fee applies uniformly to all Market Makers, in that any Market
Maker who exceeds the 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 Market Makers by considering the volume added ratio when
determining the multiplier.\14\ As discussed above potential impact on
Exchange Systems, bandwidth and capacity becomes greater with increased
mass cancel and purge rates. Accordingly, the Exchange believes that
the proposed Fee does not favor certain categories of market
participants in a manner that would impose a burden on competition.
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\14\ In the event a Market Maker's Added Volume Ratio is under
101, a Market Maker will not be assessed the fee despite having a
Total Mass Cancel and Purge Count that is 75,000,000 or more in a
given day.
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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
[[Page 21528]]
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.'' \15\ 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'. . . .''.\16\ 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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\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\16\ 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 \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.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2025-033 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-2025-033. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CBOE-2025-033 and should be
submitted on or before June 10, 2025.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-08924 Filed 5-19-25; 8:45 am]
BILLING CODE 8011-01-P