[Federal Register Volume 86, Number 153 (Thursday, August 12, 2021)]
[Notices]
[Pages 44451-44454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17172]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92597; File No. SR-CBOE-2021-044]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fees Schedule Relating to the Options Regulatory Fee

 August 6, 2021.
    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 August 2, 2021, 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 amend its Fees Schedule relating to the Options Regulatory Fee. The 
text of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements

[[Page 44452]]

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 reduce the Options Regulatory Fee 
(``ORF'') from $0.0023 per contract to $0.0017 per contract, effective 
August 2, 2021, in order to help ensure that revenue collected from the 
ORF, in combination with other regulatory fees and fines, does not 
exceed the Exchange's total regulatory costs.
    The ORF is assessed by Cboe Options to each Trading Permit Holder 
(``TPH'') for options transactions cleared by the TPH that are cleared 
by the Options Clearing Corporation (``OCC'') in the customer range, 
regardless of the exchange on which the transaction occurs.\3\ In other 
words, the Exchange imposes the ORF on all customer-range transactions 
cleared by a TPH, even if the transactions do not take place on the 
Exchange. The ORF is collected by OCC on behalf of the Exchange from 
the Clearing Trading Permit Holder (``CTPH'') or non-CTPH that 
ultimately clears the transaction. With respect to linkage 
transactions, Cboe Options reimburses its routing broker providing 
Routing Services pursuant to Cboe Options Rule 5.36 for options 
regulatory fees it incurs in connection with the Routing Services it 
provides.
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    \3\ The Exchange notes ORF also applies to customer-range 
transactions executed during Global Trading Hours.
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    Revenue generated from ORF, when combined with all of the 
Exchange's other regulatory fees and fines, is designed to recover a 
material portion of the regulatory costs to the Exchange of the 
supervision and regulation of TPH customer options business including 
performing routine surveillances, investigations, examinations, 
financial monitoring, and policy, rulemaking, interpretive, and 
enforcement activities. Regulatory costs include direct regulatory 
expenses and certain indirect expenses for work allocated in support of 
the regulatory function. The direct expenses include in-house and 
third-party service provider costs to support the day-to-day regulatory 
work such as surveillances, investigations and examinations. The 
indirect expenses include support from such areas as human resources, 
legal, compliance, information technology, facilities and accounting. 
These indirect expenses are estimated to be approximately 27% of Cboe 
Options' total regulatory costs for 2021. Thus, direct expenses are 
estimated to be approximately 73% of total regulatory costs for 2021. 
In addition, it is Cboe Options' practice that revenue generated from 
ORF not exceed more than 75% of total annual regulatory costs.
    The Exchange monitors its regulatory costs and revenues at a 
minimum on a semi-annual basis. If the Exchange determines regulatory 
revenues exceed or are insufficient to cover a material portion of its 
regulatory costs in a given year, the Exchange will adjust the ORF by 
submitting a fee change filing to the Commission. The Exchange also 
notifies TPHs of adjustments to the ORF via an Exchange Notice.\4\ 
Based on the Exchange's most recent semi-annual review, the Exchange is 
proposing to reduce the amount of ORF that will be collected by the 
Exchange from $0.0023 per contract side to $0.0017 per contract side. 
The proposed decrease is based on the Exchange's estimated projections 
for its regulatory costs, which have decreased, balanced with recent 
options volumes, which has increased. For example, total options 
contract volume in March 2021 was approximately 34% higher than the 
total options contract volume in March 2020 and the total options 
contract volume in June 2021 was approximately 25% higher than the 
total options contract volume in June 2020.\5\ In fact, March 2021 was 
the highest, and June 2021 was the second highest, options volume month 
in the history of U.S. equity options industry.\6\ Below is also 
industry data from OCC which illustrates the significant increase in 
volume from January 2021 through March 2021.\7\ Moreover, the options 
volume in the first quarter of 2021 was higher than the fourth quarter 
of 2020.\8\ Also April and May 2021 volumes remain significantly high 
as compared to 2020 options volume in general.\9\
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    \4\ The Exchange endeavors to provide TPHs with such notice at 
least 30 calendar days prior to the effective date of the change. 
The Exchange notified TPHs of the proposed rate change for August 2, 
2021 on July 1, 2021. See Exchange Notice, C2021070103 ``Cboe 
Options Exchanges Regulatory Fee Update Effective August 2, 2021.''
    \5\ See https://www.theocc.com/Newsroom/Press-Releases/2021/04-05-OCC-March-2021-Total-Volume-Up-34-8-Percent and https://www.theocc.com/Newsroom/Press-Releases/2021/07-02-OCC-June-2021-Total-Volume-Up-25-6-Percent-f.
    \6\ Id.
    \7\ See data from OCC at: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Volume-by-Account-Type.
    \8\ Id.
    \9\ Id.

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                          Volume                              January 2021      February 2021        March 2021         April 2021          May 2021
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Total....................................................        838,339,790        823,412,827        898,653,388        711,388,828        718,368,993
Customer.................................................        784,399,878        782,113,450        837,247,059        667,208,963        659,913,862
Total ADV................................................      44,123,146.84      43,337,517.20      39,071,886.40      33,875,658.50      35,918,449.70
Customer ADV.............................................      41,284,204.11      41,163,865.79      36,402,046.04      36,402,046.04      32,995,693.10
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    These expectations are estimated, preliminary and may change. There 
can be no assurance that the Exchange's final costs for 2021 will not 
differ materially from these expectations and prior practice, nor can 
the Exchange predict with certainty whether options volume will remain 
at the current level going forward. The Exchange notes however, that 
when combined with the Exchange's other non-ORF regulatory fees and 
fines, the revenue being generated by ORF using the current rate 
results in revenue that is running in excess of the Exchange's 
estimated regulatory costs for the year.\10\ Particularly, as discussed 
above, the options market has seen a substantial increase in volume 
over the first half of the year, up even from last year's unprecedented 
spike in volatility and volume. This increase resulted in higher volume 
than was originally projected by the Exchange (thereby resulting in 
higher ORF revenue than projected). Moreover, in addition to projected 
reductions in regulatory expenses, the Exchange experienced further 
unanticipated reductions in costs, in connection with the continuing 
COVID-

[[Page 44453]]

19 pandemic (e.g., continued reduction in travel expenses).\11\ 
Accordingly, because revenue generated by the current ORF rates, when 
combined with the Exchange's other non-ORF regulatory fees and fines, 
is expected to exceed the Exchange's regulatory costs for the year, the 
Exchange proposes to decrease its ORF rate. Particularly, the Exchange 
believes that by [sic] decreasing the ORF, as amended, when combined 
with all of the Exchange's other regulatory fees and fines, would allow 
the Exchange to continue covering a material portion of its regulatory 
costs, while lessening the potential for generating excess revenue that 
may otherwise occur using the current rate.\12\
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    \10\ Consistent with Rule 2.2 (Regulatory Revenue), the Exchange 
notes that notwithstanding the excess ORF revenue collected to date, 
it has not used such revenue for nonregulatory purposes.
    \11\ The Exchange notes that in connection with proposed ORF 
rate changes, it provides the Commission confidential details 
regarding the Exchange's projected regulatory revenue, including 
projected revenue from ORF, along with a breakout of its projected 
regulatory expenses, including both direct and indirect allocations.
    \12\ The Exchange notes that its regulatory responsibilities 
with respect to TPH compliance with options sales practice rules 
have largely been allocated to FINRA under a 17d-2 agreement. The 
ORF is not designed to cover the cost of that options sales practice 
regulation.
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    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs.
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.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act\14\ which provides that Exchange rules may provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its TPHs and other persons using its facilities. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \15\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\15 U.S.C. 78f(b).
    \14\15 U.S.C. 78f(b)(4).
    \15\15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed fee change is reasonable because 
customer transactions will be subject to a lower ORF fee than the 
current rate. Moreover, the proposed reduction is necessary in order to 
lessen the potential that the Exchange collects revenue in excess of 
its anticipated regulatory costs, in combination with other regulatory 
fees and fines, which is consistent with the Exchange's practices. The 
Exchange had designed the ORF to generate revenues that would be less 
than or equal to 75% of the Exchange's regulatory costs, which is 
consistent with the view of the Commission that regulatory fees be used 
for regulatory purposes and not to support the Exchange's business 
operations. As discussed above, however, after its semi-annual review 
of its regulatory costs and regulatory revenues, which includes 
revenues from ORF and other regulatory fees and fines, the Exchange 
determined that absent a reduction in ORF, it would be collecting 
revenue in excess of 75% of its regulatory costs. Indeed, the Exchange 
notes that when taking into account the recent options volume, coupled 
with the projected reduction in regulatory costs, it estimates the ORF 
will generate revenues that would cover more than the approximated 75% 
of the Exchange's projected regulatory costs. Moreover, when coupled 
with the Exchange's other regulatory fees and revenues, the Exchange 
estimates ORF to generate over 100% of the Exchange's projected 
regulatory costs. As such, the Exchange believes it's reasonable and 
appropriate to decrease the ORF amount from $0.0023 to $0.0017 per 
contract side.
    The Exchange also believes the proposed fee change is equitable and 
not unfairly discriminatory in that it is charged to all TPHs on all 
their transactions that clear in the customer range at the OCC. The 
Exchange believes the ORF ensures fairness by assessing higher fees to 
those TPHs that require more Exchange regulatory services based on the 
amount of customer options business they conduct. Regulating customer 
trading activity is much more labor intensive and requires greater 
expenditure of human and technical resources than regulating non-
customer trading activity, which tends to be more automated and less 
labor-intensive. For example, there are costs associated with main 
office and branch office examinations (e.g., staff and travel 
expenses), as well as investigations into customer complaints and the 
terminations of Registered persons. As a result, the costs associated 
with administering the customer component of the Exchange's overall 
regulatory program are materially higher than the costs associated with 
administering the non-customer component (e.g., TPH proprietary 
transactions) of its regulatory program.\16\ Moreover, the Exchange 
notes that it has broad regulatory responsibilities with respect to its 
TPHs' activities, irrespective of where their transactions take place. 
Many of the Exchange's surveillance programs for customer trading 
activity may require the Exchange to look at activity across all 
markets, such as reviews related to position limit violations and 
manipulation. Indeed, the Exchange cannot effectively review for such 
conduct without looking at and evaluating activity irregardless of 
where it transpires. In addition to its own surveillance programs, the 
Exchange also works with other SROs and exchanges on intermarket 
surveillance related issues. Through its participation in the 
Intermarket Surveillance Group (``ISG'') \17\ the Exchange shares 
information and coordinates inquiries and investigations with other 
exchanges designed to address potential intermarket manipulation and 
trading abuses. Accordingly, there is a strong nexus between the ORF 
and the Exchange's regulatory activities with respect to its TPH's 
customer trading activity.
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    \16\ If the Exchange changes its method of funding regulation or 
if circumstances otherwise change in the future, the Exchange may 
decide to modify the ORF or assess a separate regulatory fee on TPH 
proprietary transactions if the Exchange deems it advisable.
    \17\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by cooperatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. This proposal does not create 
an unnecessary or inappropriate intra-market burden on competition 
because the ORF applies to all customer activity, thereby raising 
regulatory revenue to offset regulatory expenses. It also supplements 
the regulatory revenue derived from non-customer activity. The Exchange 
notes, however, the proposed change is not designed to address any 
competitive issues. Indeed, this proposal does not create an 
unnecessary or inappropriate inter-market burden on competition because 
it is a regulatory fee that supports regulation in furtherance of the 
purposes of the Act. The Exchange is obligated to ensure that the 
amount of regulatory revenue collected from the

[[Page 44454]]

ORF, in combination with its other regulatory fees and fines, does not 
exceed regulatory costs.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \18\ and paragraph (f) of Rule 19b-4 \19\ 
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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e496918881c9878b8989818a9097a4978187ca838b92"><span class="__cf_email__" data-cfemail="740601181159171b1919111a0007340711175a131b02">[email protected]</span></a>. Please include 
File No. SR-CBOE-2021-044 on the subject line.

Paper Comments

    <bullet> 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 No. SR-CBOE-2021-044. 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 (http://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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File No. SR-CBOE-2021-044, and should be submitted on 
or before September 2, 2021.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17172 Filed 8-11-21; 8:45 am]
BILLING CODE 8011-01-P


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