Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68859 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). A proposed rule change 

may take effect upon filing with the Commission if 

it is designated by the exchange as ‘‘establishing or 

changing a due, fee, or other charge imposed by the 

self-regulatory organization on any person, whether 

or not the person is a member of the self-regulatory 

organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). 

4See Securities Exchange Act Release No. 98397 

(September 14, 2023), 88 FR 64939 (‘‘Notice’’). 

5 15 U.S.C. 78s(b)(3)(C). 

6The term ‘‘Trading Permit Holder’’ means an 

Exchange-recognized holder of a Trading Permit. 

The term ‘‘Trading Permit’’ means a permit issued 

by the Exchange that confers the ability to transact 

on the Exchange. See Exchange Rule 1.1. 

7A physical port is utilized by a TPH or non-TPH 

to connect to the Exchange at the data centers 

where the Exchange’s servers are located. 

8 15 U.S.C. 78s(b)(3)(C). 

9 15 U.S.C. 78s(b)(1). 

10See Notice, supra note 4, at 64940. 

11See id. 

12See id. 

13See id. 

14See id. 

15See id. 

16See id. 

17See id. 

18See id. 

19See id. 

20See id. The Exchange states there are currently 

16 registered options exchanges that trade options 

(12 of which are not affiliated with Cboe), some of 

which have similar or lower connectivity fees; and 

based on publicly available information, no single 

options exchange has more than approximately 

19% of the market share. 

21See id. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98649; File No. SR–C2– 

2023–020] 

Self-Regulatory Organizations; Cboe 

C2 Exchange, Inc.; Suspension of and 

Order Instituting Proceedings To 

Determine Whether To Approve or 

Disapprove Proposed Rule Change To 

Amend Its Fee Schedule Related to 

Physical Port Fees 

September 29, 2023. 

I. Introduction 

On September 1, 2023, Cboe C2 

Exchange, Inc. (the ‘‘Exchange’’ or ‘‘C2’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’),1 and 

Rule 19b–4 thereunder,2 a proposed rule 

change (File Number SR–C2–2023–020) 

to amend its fee schedule to increase the 

monthly fee for 10 gigabit (‘‘Gbps’’) 

physical ports. The proposed rule 

change was immediately effective upon 

filing with the Commission pursuant to 

Section 19(b)(3)(A) of the Act.3 The 

proposed rule change was published for 

comment in the Federal Register on 

September 20, 2023.4 Pursuant to 

Section 19(b)(3)(C) of the Act,5 the 

Commission is hereby: (1) temporarily 

suspending the proposed rule change; 

and (2) instituting proceedings to 

determine whether to approve or 

disapprove the proposed rule change. 

II. Background and Description of the 

Proposed Rule Change 

The Exchange proposes to amend its 

fee schedule relating to physical 

connectivity fees. The Exchange 

proposes to increase the monthly fee for 

10 Gbps physical ports from $7,500 to 

$8,500 per port. The Exchange currently 

assesses the following physical 

connectivity fees for Trading Permit 

Holders 6 (‘‘TPHs’’) and non-TPHs on a 

monthly basis: $2,500 per physical port 

for a 1 Gbps circuit and $7,500 per 

physical port for a 10 Gbps circuit.7

According to the Exchange, the physical 

ports may also be used to access the 

systems for the following affiliate 

exchanges and only one monthly fee 

currently (and will continue) to apply 

per port: Cboe BZX Exchange, Inc. 

(options and equities platforms), Cboe 

EDGX Exchange, Inc. (options and 

equities platforms), Cboe BYX 

Exchange, Inc., and Cboe EDGA 

Exchange, Inc. 

III. Suspension of the Proposed Rule 

Change 

Pursuant to Section 19(b)(3)(C) of the 

Act,8 at any time within 60 days of the 

date of filing of an immediately effective 

proposed rule change pursuant to 

Section 19(b)(1) of the Act,9 the 

Commission summarily may 

temporarily suspend the change in the 

rules of a self-regulatory organization 

(‘‘SRO’’) 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. The Commission believes a 

temporary suspension of the proposed 

rule change is necessary and 

appropriate to allow for additional 

analysis of the proposed rule change’s 

consistency with the Act and the rules 

thereunder. 

In support of the proposal, the 

Exchange states its belief that the 

proposed fee change is reasonable as it 

reflects a moderate increase in physical 

connectivity fees for 10 Gbps physical 

ports.10 The Exchange states that the 

current 10 Gbps physical port fee has 

remained unchanged since June 2018.11

The Exchange states that during this 5- 

year span there has been an average 

inflation rate of 3.9%, producing a 

cumulative price increase of 

approximately 21.1% inflation since the 

fee for the 10 Gbps physical port was 

last modified.12 In support of its claim 

of reasonableness, the Exchange 

compares its proposed rate increase 

from the rates adopted five years ago of 

approximately 13% to the cumulative 

inflation rate of 21.1%.13

In further support of the proposal, the 

Exchange states that the proposed fee is 

reasonable, fair, and equitable, and not 

unfairly discriminatory.14 The Exchange 

believes that the proposed fee is 

reasonable as it is still in line with, or 

even lower than, amounts assessed by 

other exchanges for similar 

connections.15 The Exchange also states 

its belief that the fee is not unfairly 

discriminatory, because the fee would 

be assessed uniformly across all market 

participants that purchase the physical 

ports.16 The Exchange states that the fee 

is equitable because increasing the fee 

for 10 Gbps physical ports and charging 

a higher fee as compared to the 1 Gbps 

physical port as the 1 Gbps physical 

port is 1/10 the size of the 10 Gbps 

physical port and does not offer access 

to many of the products and services 

offered by the Exchange.17 The 

Exchange also states its belief the 

proposed fee is reasonably and 

appropriately allocated because, the 

Exchange states, market participants 

that purchase 10 Gbps physical ports 

use the most bandwidth and therefore 

consume the most resources from the 

network.18

In further support of its proposed fee, 

the Exchange states that TPHs and nonTPHs will continue to choose the 

method of connectivity based on their 

specific needs and no broker-dealer is 

required to become a TPH of, or connect 

directly to, the Exchange.19 The 

Exchange also states its belief that 

substitutable products and services are 

available to market participants, 

including, among other things, other 

options exchanges that a market 

participant may connect to in lieu of the 

Exchange, indirect connectivity to the 

Exchange via a third-party reseller of 

connectivity, and/or trading of any 

options product, such as within the 

Over-the-Counter markets.20

Additionally, the Exchange believes that 

low barriers to entry mean that new 

exchanges may rapidly enter the market 

and offer additional substitute platforms 

to further compete with the Exchange 

and the products it offers.21 According 

to the Exchange, there are 3 exchanges 

that have been added in the U.S. options 

markets in the last 5 years (i.e., Nasdaq 

MRX, LLC, MIAX Pearl, LLC, and MIAX 

Emerald LLC) and one additional 


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22See id. 23See id. at 64941. 24See id. 25See id. The Exchange states this alternative is 

already being used by non-TPHs and further 

constrains the price that the Exchange is able to 

charge for connectivity to its Exchange. 

26See id. The Exchange states its belief these 

third-party resellers may purchase the Exchange’s 

physical ports and resell access to such ports either 

alone or as part of a package of services. 

27See id. 

28See id. 

29See id. 

30See id. 

31See id. 

32See id. 

33See id. 

34See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose 

of, and Statutory Basis for, the Proposed Rule 

Change’’). 

35See id. 

36 15 U.S.C. 78f(b)(4). 

37 15 U.S.C. 78f(b)(5). 

38 15 U.S.C. 78f(b)(8). 

39See 15 U.S.C. 78f(b)(4), (5), and (8), 

respectively. 

40For purposes of temporarily suspending the 

proposed rule change, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

41 15 U.S.C. 78s(b)(3)(C). Once the Commission 

temporarily suspends a proposed rule change, 

Section 19(b)(3)(C) of the Act requires that the 

Commission institute proceedings under Section 

19(b)(2)(B) to determine whether a proposed rule 

change should be approved or disapproved. 

42 15 U.S.C. 78s(b)(2)(B). 

43 Id. Section 19(b)(2)(B) of the Act also provides 

that proceedings to determine whether to 

disapprove a proposed rule change must be 

concluded within 180 days of the date of 

publication of notice of the filing of the proposed 

options exchange that is expected to 

launch in 2023 (i.e., MEMX LLC).22

The Exchange states its belief that 

participation on the Exchange remains 

affordable (notwithstanding the 

proposed fee change) for all market 

participants, including smaller trading 

firms that may be able to take advantage 

of lower costs that result from 

mutualized connectivity.23 The 

Exchange states that a market 

participant may submit orders to the 

Exchange via a TPH broker or a thirdparty reseller of connectivity.24 The 

Exchange notes that third-party nonTPHs also resell exchange connectivity, 

which the Exchange states is another 

viable alternative for market 

participants to trade on the Exchange 

without connecting directly to the 

Exchange (and thus not pay the 

Exchange’s connectivity fees).25 The 

Exchange states it does not preclude 

market participants from reselling its 

connectivity and has not adopted fees 

that would be assessed to third-party 

resellers on a per customer basis (i.e., 

fee based on number of TPHs that 

connect to the Exchange indirectly via 

the third-party).26 The Exchange notes 

that multiple TPHs are able to share a 

single physical port (and corresponding 

bandwidth) with other non-affiliated 

TPHs if purchased through a third-party 

reseller.27 The Exchange states its belief 

that this allows resellers to mutualize 

the costs of the ports for market 

participants and provide such ports at a 

price that may be lower than the 

Exchange charges due to this 

mutualized connectivity.28

Finally, the Exchange states that the 

proposed fees would not cause any 

unnecessary or inappropriate burden on 

intermarket competition because 

proposed fee is lower than some fees for 

similar connectivity on other exchanges 

and therefore may stimulate intermarket 

competition by attracting additional 

firms to connect to the Exchange or at 

least should not deter interested 

participants from connecting directly to 

the Exchange.29 The Exchange also 

states that if the changes proposed 

herein are unattractive to market 

participants, the Exchange can, and 

likely will, see a decline in connectivity 

via 10 Gbps physical ports as a result.30

Furthermore, the Exchange states that it 

operates in a highly competitive market 

in which market participants can 

determine whether or not to connect 

directly to the Exchange based on the 

value received compared to the cost of 

doing so.31 The Exchange also states 

that the proposed rule change would not 

cause any unnecessary or inappropriate 

burden on intramarket competition 

because it will apply to all similarly 

situated TPHs equally (i.e., all market 

participants that choose to purchase the 

10 Gbps physical port).32 Additionally, 

the Exchange stated that it does not 

believe its proposed pricing will impose 

a barrier to entry to smaller participants 

and notes that its proposed connectivity 

pricing is associated with relative usage 

of the various market participants.33

To date, the Commission has not 

received any comment letters on the 

proposed rule change. 

When exchanges file their proposed 

rule changes with the Commission, 

including fee filings like the Exchange’s 

present proposal, they are required to 

provide a statement supporting the 

proposal’s basis under the Act and the 

rules and regulations thereunder 

applicable to the exchange.34 The 

instructions to Form 19b–4, on which 

exchanges file their proposed rule 

changes, specify that such statement 

‘‘should be sufficiently detailed and 

specific to support a finding that the 

proposed rule change is consistent with 

[those] requirements.’’ 35

Section 6 of the Act, including 

Sections 6(b)(4), (5), and (8), require the 

rules of an exchange to: (1) provide for 

the equitable allocation of reasonable 

fees among members, issuers, and other 

persons using the exchange’s 

facilities; 36 (2) perfect the mechanism of 

a free and open market and a national 

market system, protect investors and the 

public interest, and not be designed to 

permit unfair discrimination between 

customers, issuers, brokers, or 

dealers; 37 and (3) not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.38

In temporarily suspending the 

Exchange’s proposed rule change, the 

Commission intends to further consider 

whether the proposal to increase the 

monthly fee for 10 Gbps physical ports 

from $7,500 to $8,500 per port for the 

Exchange is consistent with the 

statutory requirements applicable to a 

national securities exchange under the 

Act. In particular, the Commission will 

consider whether the proposed rule 

change satisfies the standards under the 

Act and the rules thereunder requiring, 

among other things, that an exchange’s 

rules provide for the equitable 

allocation of reasonable fees among 

members, issuers, and other persons 

using its facilities; not permit unfair 

discrimination between customers, 

issuers, brokers or dealers; and do not 

impose any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act.39

Therefore, the Commission finds that 

it is appropriate in the public interest, 

for the protection of investors, and 

otherwise in furtherance of the purposes 

of the Act, to temporarily suspend the 

proposed rule change.40

IV. Proceedings To Determine Whether 

To Approve or Disapprove the 

Proposed Rule Change 

In addition to temporarily suspending 

the proposal, the Commission also 

hereby institutes proceedings pursuant 

to Sections 19(b)(3)(C) 41 and 19(b)(2)(B) 

of the Act 42 to determine whether the 

Exchange’s proposed rule change 

should be approved or disapproved. 

Institution of proceedings does not 

indicate that the Commission has 

reached any conclusions with respect to 

any of the issues involved. Rather, the 

Commission seeks and encourages 

interested persons to provide additional 

comment on the proposed rule change 

to inform the Commission’s analysis of 

whether to approve or disapprove the 

proposed rule change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,43 the Commission is providing 


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rule change. See id. The time for conclusion of the 

proceedings may be extended for up to 60 days if 

the Commission finds good cause for such 

extension and publishes its reasons for so finding, 

or if the exchange consents to the longer period. See 

id. 

44 15 U.S.C. 78f(b)(4). 

45 15 U.S.C. 78f(b)(5). 

46 15 U.S.C. 78f(b)(8). 

47 17 CFR 201.700(b)(3). 

48See id. 

49See id. 

50See 15 U.S.C. 78f(b)(4), (5), and (8). 

51 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act 

grants the Commission flexibility to determine what 

type of proceeding—either oral or notice and 

opportunity for written comments—is appropriate 

for consideration of a particular proposal by an 

SRO. See Securities Acts Amendments of 1975, 

Report of the Senate Committee on Banking, 

Housing and Urban Affairs to Accompany S. 249, 

S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 

52 15 U.S.C. 78s(b)(3)(C). 

53 17 CFR 200.30–3(a)(57). 

notice of the grounds for possible 

disapproval under consideration: 

• Whether the Exchange has 

demonstrated how the proposed fees are 

consistent with Section 6(b)(4) of the 

Act, which requires that the rules of a 

national securities exchange ‘‘provide 

for the equitable allocation of reasonable 

dues, fees, and other charges among its 

members and issuers and other persons 

using its facilities’’; 44

• Whether the Exchange has 

demonstrated how the proposed fees are 

consistent with Section 6(b)(5) of the 

Act, which requires, among other 

things, that the rules of a national 

securities exchange not be ‘‘designed to 

permit unfair discrimination between 

customers, issuers, brokers, or 

dealers’’; 45 and 

• Whether the Exchange has 

demonstrated how the proposed fees are 

consistent with Section 6(b)(8) of the 

Act, which requires that the rules of a 

national securities exchange ‘‘not 

impose any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of [the Act].’’ 46

As discussed in Section III above, the 

Exchange made various arguments in 

support of their proposal. The 

Commission believes that there are 

questions as to whether the Exchange 

has provided sufficient information to 

demonstrate that the proposed fees are 

consistent with the Act and the rules 

thereunder. 

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the [Act] and the rules 

and regulations issued thereunder . . . 

is on the [SRO] that proposed the rule 

change.’’ 47 The description of a 

proposed rule change, its purpose and 

operation, its effect, and a legal analysis 

of its consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,48 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Act and the applicable rules 

and regulations.49

The Commission is instituting 

proceedings to allow for additional 

consideration and comment on the 

issues raised herein, including as to 

whether the proposed fees are 

consistent with the Act, and 

specifically, with its requirements that 

exchange fees be reasonable and 

equitably allocated, not be unfairly 

discriminatory, and not impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act.50

V. Commission’s Solicitation of 

Comments 

The Commission requests written 

views, data, and arguments with respect 

to the concerns identified above as well 

as any other relevant concerns. Such 

comments should be submitted by 

October 25, 2023. Rebuttal comments 

should be submitted by November 8, 

2023. Although there do not appear to 

be any issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b–4, any 

request for an opportunity to make an 

oral presentation.51

The Commission asks that 

commenters address the sufficiency and 

merit of the Exchange’s statements in 

support of the proposal, in addition to 

any other comments they may wish to 

submit about the proposed rule change. 

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 rule-comments@

sec.gov. Please include file number 

SR–C2–2023–020 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–C2–2023–020. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–C2–2023–020 and should be 

submitted on or before October 25, 

2023. Rebuttal comments should be 

submitted by November 8, 2023. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(3)(C) of the Act,52 that File 

No. SR–C2–2023–020, be and hereby is, 

temporarily suspended. In addition, the 

Commission is instituting proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.53

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–22012 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 


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