`[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106675-106680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-31191]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102024; File No. SR-CboeBZX-2024-131]


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

December 20, 2024.
    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 December 20, 2024, 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 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 (http://markets.cboe.com/us/equities/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 
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

[[Page 106676]]

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 and current 
BOEv2 \12\ port traffic) 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 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 anticipates decommissioning BOEv2 in February 
2025.
    \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.
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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:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
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-20th 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-20th 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-20th 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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    \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. Particularly, the Exchange proposes 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. As an example, a Member 
may request 2 BOE Unitized Logical Port Sets and 18 individual BOE 
Unitized Logical Ports for Matching

[[Page 106677]]

Unit 1, providing a total max of 20 BOE Unitized Logical Ports on 
Matching Unit 1 specifically. This would result in having 20 BOE 
Unitized Logical Ports on Matching Unit 1 and 2 BOE Unitized Ports on 
all additional Matching Units as part of the 2 BOE Unitized Logical 
Port Sets requested. Additionally, a firm may request 20 Bulk Unitized 
Logical Port Sets and 20 Purge Unitized Logical Port Sets as those 
would constitute different port types.\19\ The Exchange believes the 
proposed cap will be sufficient for the vast majority of Members.\20\ 
The Exchange notes that it will monitor interest in Unitized Logical 
Ports and system capacity availability with the goal of 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.
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    \19\ The Exchange proposes to include this example in its Fee 
Schedule to provide clarity as to how Unitized Logical Port fees 
will be assessed.
    \20\ The Exchange notes that one Member has indicated that it 
may desire more than the current maximum in the future.
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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.\21\ A Member's ADO 
and ADQ will be aggregated together with any affiliated Member sharing 
at least 75% common ownership.
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    \21\ 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
                                           -------------------------------------------------------------------------------------------------------------
        ADQ Fee rate per 20,000 ADQ               Tier 1 <=                                                          Tier 4                Tier 5
                                                 250,000,000       Tier 2 >250,000,000   Tier 3 >500,000,000     >1,000,000,000        >3,500,000,000
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                                                           $0.00                 $0.05                $0.075                 $0.10                 $0.20
ADO Fee Rate per 1,000 ADO................   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
                                                           $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.\22\
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    \22\ 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

[[Page 106678]]

higher fees to Members that have incrementally higher order and/or 
quoting trading activity for similar reasons.\23\
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    \23\ 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 ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\24\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \25\ 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) \26\ 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) \27\ 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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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Id.
    \27\ 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.\28\ 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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    \28\ See Securities Exchange Act Release 100582 (July 23, 2024), 
89 FR 60958 (July 29, 2024) (SR-CboeBZX-2024-071).
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    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 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 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.\29\ 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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    \29\ 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

[[Page 106679]]

impeded by the proposal.\30\ 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.'' 
\31\
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    \30\ 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.
    \31\ 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 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.\32\
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    \32\ 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 participate on, and it represents a small percentage of the 
overall market.\33\
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    \33\ 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

[[Page 106680]]

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.'' \34\ 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' . . . .'' \35\ 
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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    \34\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \35\ 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 \36\ and paragraph (f) of Rule 19b-4 \37\ 
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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    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 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-2024-131 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-2024-131. 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-CboeBZX-2024-131 and should 
be submitted on or before January 21, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-31191 Filed 12-27-24; 8:45 am]
BILLING CODE 8011-01-P`