[Federal Register Volume 86, Number 111 (Friday, June 11, 2021)]
[Notices]
[Pages 31356-31360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12248]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92121; File No. SR-CBOE-2021-037]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fees Schedule To Adopt a New Floor Broker Incentive Program and To 
Make a Clarifying Change to the Definition of Facilitation Orders

June 7, 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 June 1, 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 to adopt a new Floor Broker incentive 
program and to make a clarifying change to the definition of 
facilitation orders. 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 Fees Schedule to adopt a new 
Floor Broker incentive program and to make a clarifying change to the 
definition of facilitation orders in footnote 11 of the Fees Schedule, 
effective June 1, 2021.
    The Exchange first 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. More specifically, the 
Exchange is only one of 16 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 16% of the market share.\3\ 
Thus, in such a low-concentrated and highly competitive market, no 
single options exchange possesses significant pricing power in the 
execution of option order flow. The Exchange believes that the ever-
shifting market share among the exchanges from month to month 
demonstrates that market participants can shift order flow, or 
discontinue use of certain categories of products, in response to fee 
changes. Accordingly, competitive forces constrain the Exchange's 
transaction fees, and market participants can readily trade on 
competing venues if they deem pricing levels at those other venues to 
be more favorable. The Exchange offers specific rates and rebates in 
its Fees Schedule, like that of other options exchanges' fees 
schedules, which the Exchange believes provide incentive to Trading 
Permit Holders (``TPHs'') to increase order flow of certain qualifying 
orders.
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    \3\ See Cboe Global Markets U.S. Options Market Volume Summary, 
Month-to-Date (May 24, 2021), available at https://markets.cboe.com/us/options/market_statistics/.
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    Also, in response to the competitive environment, the Exchange 
offers various tiered incentive programs which provide TPHs 
opportunities to qualify for higher rebates or reduced rates where 
certain volume criteria and thresholds are met. Tiered pricing provides 
an incremental incentive for TPHs to strive for higher tier levels, 
which provides increasingly higher benefits or discounts for satisfying 
increasingly more stringent criteria. For example, the Exchange 
currently offers, among other tiered volume programs, a

[[Page 31357]]

Liquidity Provider Sliding Scale that offers credits on Market-Maker 
orders where a Market-Maker achieves certain volume thresholds based on 
total national Market-Maker volume in all underlying symbols, except 
products in Underlying Symbol List A \4\ and XSP, during the calendar 
month.
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    \4\ See Cboe Options Fees Schedule, Footnote 34, which provides 
that Underlying Symbol List A includes OEX, XEO, RUT, RLG, RLV, RUI, 
UKXM, SPX (includes SPXW), SPESG and VIX.
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    The Exchange now proposes to adopt a new volume-based incentive 
program for its Floor Brokers. Specifically, the proposed Floor Broker 
Sliding Scale Rebate Program (or, the ``Program'') offers four tiers 
that provide rebates on a sliding scale \5\ for qualifying orders where 
a TPH meets certain liquidity thresholds. As proposed, the Program 
applies to all products except for Underlying Symbol List A,\6\ Sector 
Indexes,\7\ DJX, MRUT, MXEA, MXEF and XSP (``multiply-listed 
options''). The Program offers two categories of rebates that 
correspond to each of the proposed tiers; one that applies to Firm 
Facilitated orders (i.e., orders that yield fee code FF) \8\ and 
another that applies to all other non-Firm Facilitated orders (i.e., 
orders that do not yield fee code FF). The proposed rebates will apply 
only to Non-Customer,\9\ Non-Strategy, Floor Broker orders. The 
Exchange notes that the definition of facilitation orders is provided 
in footnote 11 of the Fees Schedule (as described in further detail 
below) and, therefore, the proposed rule change appends footnote 11 to 
the ``Firm Facilitated Rebate'' column in the Floor Broker Incentive 
Program table. Further, Strategy Orders are defined in footnote 13 of 
the Fees Schedule and, therefore, the proposed rule change also appends 
footnote 13 to the ``Criteria'' column in the Floor Broker Incentive 
Program table.\10\ A TPH will receive the applicable rebates on its 
qualifying orders if it meets the corresponding tier criteria, measured 
over a month. The tiers' criteria are also based on the amount of a 
TPH's Non-Customer, Non-Strategy, Floor Broker volume over a baseline 
month (``Step-Up Volume''). The specific Floor Broker Sliding Scale 
Rebate Program tiers and corresponding rebates, as proposed, are as 
follows:
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    \5\ The rebate offered under each tier is only applied to the 
qualifying volume within that tier. In addition, the Exchange 
calculates the average rebate for each type of rebate (Firm 
Facilitated and Non-Firm Facilitated) based on the TPH's total 
qualifying volume across all four tiers plus its qualifying baseline 
volume (which corresponds to a rebate of $0.00). Each respective 
average rebate is applied to the percentage of qualifying volume 
that corresponds specifically to the type of order (Firm Facilitated 
or Non-Firm Facilitated) volume and added together, which results in 
a final average rebate. The final average rebate is then applied to 
the TPH's total qualifying executions. This is consistent with the 
manner in which the Exchange calculates rebates for other sliding 
scale programs offered under the Fees Schedule.
    \6\ See id.
    \7\ See Cboe Options Fees Schedule, Footnote 47, which provides 
that Sector Index underlying symbols include IXB, SIXC, IXE, IXI, 
IXM, IXR, IXRE, IXT, IXU, IXV AND IXY, and corresponding option 
symbols include SIXB, SIXC, SIXE, SIXI, SIXM, SIXR, SIXRE, SIXT, 
SIXU, SIXV AND SIXY.
    \8\ Orders that yield fee code FF are not assessed a charge. See 
Cboe U.S. Options Fee Schedules, Fees and Associated Fee Codes, 
available at: https://markets.cboe.com/us/options/membership/fee_schedule/cboe/.
    \9\ Non-Customers include all capacities except for ``C'' 
(Customer), specifically: ``M'' capacity (Market-Maker); ``N'' 
capacity (Non-TPH Market-Maker); ``F'' capacity (Clearing TPH); 
``L'' capacity (Non-Clearing TPH Affiliates); ``J'' capacity (Joint 
Back-Office); ``U'' capacity (Professional); and ``B'' capacity 
(Broker-Dealer).
    \10\ Footnote 13, in relevant part, provides that: a ``merger 
strategy'' is defined as transactions done to achieve a merger 
arbitrage involving the purchase, sale and exercise of options of 
the same class and expiration date, each executed prior to the date 
on which shareholders of record are required to elect their 
respective form of consideration, i.e., cash or stock; a ``short 
stock interest strategy'' is defined as transactions done to achieve 
a short stock interest arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class; a ``reversal 
strategy'' is established by combining a short security position 
with a short put and a long call position that shares the same 
strike and expiration; a ``conversion strategy'' is established by 
combining a long position in the underlying security with a long put 
and a short call position that shares the same strike and 
expiration; and a ``jelly roll strategy'' is created by entering 
into two separate positions simultaneously. One position involves 
buying a put and selling a call with the same strike price and 
expiration. The second position involves selling a put and buying a 
call, with the same strike price, but with a different expiration 
from the first position.
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    <bullet> Tier 1 provides a rebate of $0.01 per contract for all 
qualifying (i.e., Non-Customer, Non-Strategy, Floor Broker orders in 
all products except Underlying Symbol List A, Sector Indexes, DJX, 
MRUT, MXEA, MXEF and XSP) Firm Facilitated orders, and a rebate of 
$0.03 per contract for all qualifying non-Firm Facilitated orders, 
where a TPH has a Step-Up Volume in Non-Customer, Non-Strategy, Floor 
Broker Volume (in applicable products) from April 2021 that is greater 
than zero contracts;
    <bullet> Tier 2 provides a rebate of $0.01 per contract for all 
qualifying Firm Facilitated orders, and a rebate of $0.04 per contract 
for all qualifying non-Firm Facilitated orders, where a TPH has a Step-
Up Volume in Non-Customer, Non-Strategy, Floor Broker Volume (in 
applicable products) from April 2021 that is greater than or equal to 
100,000 contracts;
    <bullet> Tier 3 provides a rebate of $0.01 per contract for all 
qualifying Firm Facilitated orders, and a rebate of $0.05 per contract 
for all qualifying non-Firm Facilitated orders, where a TPH has a Step-
Up Volume in Non-Customer, Non-Strategy, Floor Broker Volume (in 
applicable products) from April 2021 that is greater than or equal to 
250,000 contracts; and
    <bullet> Tier 4 provides a rebate of $0.015 per contract for all 
qualifying Firm Facilitated orders, and a rebate of $0.06 per contract 
for all qualifying non-Firm Facilitated orders, where a TPH has a Step-
Up Volume in Non-Customer, Non-Strategy, Floor Broker Volume (in 
applicable products) from April 2021 that is greater than or equal to 
500,000 contracts.
    The proposed rule change also makes clear in the proposed Program 
table that the Exchange will aggregate a TPH's volume with the volume 
of its affiliates (``affiliate'' defined as having at least 75% common 
ownership between the two entities as reflected on each entity's Form 
BD, Schedule A) for the purposes of calculating Step-Up Volume each 
month.\11\ The proposed Program is designed to encourage Floor Brokers 
to increase their order flow in all multiply-listed equity and ETP 
options to the Exchange's trading floor to meet the proposed tier 
criteria in order to receive the proposed corresponding rebate for 
their qualifying orders. The Exchange believes that incentivizing 
increased liquidity to its trading floor allows the Exchange to 
maintain a robust hybrid trading environment that serves to support 
price discovery and increased execution opportunities in open outcry, 
to the benefit of all market participants.
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    \11\ The proposed rule change also appends: Footnote 39 to the 
Program, which provides that each Trading Permit Holder is 
responsible for notifying the Exchange of all of its affiliates and 
is required to inform the Exchange immediately of any event that 
causes an entity to cease to be an affiliate in a form and manner to 
be determined by the Exchange. An ``affiliate'' is defined as having 
at least 75% common ownership between two entities as reflected on 
each entity's Form BD, Schedule A; and footnote 41 to the Program, 
which provides, in relevant part, that Position Compression Cross 
(``PCC'') transactions will not count towards any volume thresholds.
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    The proposed rule change also makes a clarifying amendment to 
footnote 11 of the Fees Schedule, which provides, in relevant part, for 
the definition of facilitation orders for the purposes of the Fees 
Schedule. Specifically, footnote 11 currently provides that 
``facilitation orders'' for this purpose are \12\ defined as any order 
in which a Clearing Trading Permit Holder (``F'' capacity code) \13\ or 
Non-Trading Permit Holder Affiliate (``L'' capacity code) is contra to 
any other origin code, provided the same

[[Page 31358]]

executing broker and clearing firm are on both sides of the transaction 
for open outcry. The Exchange notes that TPHs are permitted to make 
post-trade updates to their transactions, which may include changes to 
the executing or contra broker, the executing or contra clearing firm, 
and capacity. Such post-trade updates may potentially alter whether an 
order qualifies as a facilitation order for the purposes of the Fees 
Schedule. As such, the proposed rule change updates the definition of 
facilitation order to clarify that the executing broker and clearing 
firm must be the same on both sides of the trade following any post-
trade changes made on the trade date.
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    \12\ The proposed rule change corrects an inadvertent grammar 
error by changing ``to be'' to ``are''.
    \13\ The proposed rule change updates the format of this 
parenthetical to be consistent with similar parentheticals 
throughout footnote 11.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\14\ in general, and furthers the 
requirements of Section 6(b)(4),\15\ in particular, as it is designed 
to provide for the equitable allocation of reasonable dues, fees and 
other charges among its facilities and does not unfairly discriminate 
between customers, issuers, brokers or dealers. As stated above, the 
Exchange 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 proposed fee changes reflect a competitive pricing 
structure designed to incentivize market participants to direct their 
order flow to the Exchange's trading floor, which the Exchange believes 
would enhance market quality to the benefit of all TPHs. The Exchange 
notes that volume-based incentives and discounts have been widely 
adopted by exchanges,\16\ including the Exchange,\17\ and are 
reasonable, equitable and non-discriminatory because they are open to 
all TPHs on an equal basis and provide additional benefits or discounts 
that are reasonably related to (i) the value to an exchange's market 
quality and (ii) associated higher levels of market activity, such as 
higher levels of liquidity provision and/or growth patterns. 
Additionally, as noted above, the Exchange operates in a highly 
competitive market. The Exchange is only one of several options venues 
to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. Competing options 
exchanges offer similar tiered pricing structures to that of the 
Exchange, including incentive programs that offer rebates or rates that 
apply based upon TPHs achieving certain volume thresholds.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
    \16\ See NYSE Arca Options Fee Schedule, FB Professional 
Customer Manual Program, which provides a credit of $013 per 
contract to floor brokers that increase their monthly ADV (in 
certain capacities) by a certain percentage over a baseline, and 
excludes strategy executions from the program; and NYSE American 
Options Fee Schedule, E.1, [sic] Floor Broker Fixed Cost Prepayment 
Incentive Program (the ``FB Prepay Program''), which offers 
participating floor brokers annual rebates for achieving growth in 
manual volume by a certain percentage as measured against certain 
benchmarks, and does not apply to volume executed as part of 
Strategy Execution Fee Cap (that is, strategy orders).
    \17\ See Cboe Options Fees Schedule, Liquidity Provider Sliding 
Scale, Liquidity Provider Sliding Scale Adjustment Table, Volume 
Incentive Program, and Cboe Options Clearing Trading Permit Holder 
Proprietary Products Sliding Scale, each of which provides for a 
scale of rebates or reduced fees applicable to certain orders for 
various types of TPHs that meet certain volume thresholds under 
each.
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    In particular, the Exchange believes that the proposed Floor Broker 
Sliding Scale Rebate Program is reasonable and equitable because it is 
designed to incentivize increased order flow in multiply-listed options 
to the Exchange's trading floor. The Exchange believes that it is 
reasonable to apply the proposed Program to Non-Customer order flow as 
the Exchange recognizes that market participants that submit Non-
Customer order flow provide different, yet key, liquidity to the 
Exchange's trading floor. For instance, Market-Maker activity, 
including Non-TPH Market-Makers (``M'' and ``N'' capacities), 
facilitates tighter spreads and signals additional corresponding 
increase in order flow from other market participants. Increased 
overall order flow benefits all investors by deepening the Exchange's 
liquidity pool, potentially providing even greater execution incentives 
and opportunities. Clearing TPHs (``F'' capacity), Non-Clearing TPH 
Affiliates (``L'' capacity), Broker-Dealers (``B'' capacity), and Joint 
Back-Offices (``J'' capacity) can be an important source of liquidity 
as they specifically facilitate the execution of customer orders, 
which, in turn, adds transparency, promotes price discovery and serves 
to attract other participants, thus providing continuous liquidity to 
the Exchange. Also, Professionals (``U'' capacity) generally provide a 
greater competitive stream of order flow (by definition, more than 390 
orders in listed options per day on average during a calendar month), 
thus, providing increased competitive execution and improved pricing 
opportunities for all market participants. The Exchange further 
believes that applying the proposed Program to Non-Strategy, multiply-
listed order flow is reasonable as it is designed to compete with other 
option exchanges' for floor broker non-strategy order flow as other 
options exchanges' have fee schedules in place that offer similar 
incentives to their floor brokers that submit non-strategy orders for 
execution in open outcry.\18\
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    \18\ See supra note 15 [sic]; and BOX Options Fee Schedule, 
Section II.C, Qualified Open Outcry (``QOO'') Order Rebate, which 
offers a rebate for floor broker orders $0.075 or $0.05 per contract 
(depending on the capacity) and does not apply to Strategy QOO 
Orders.
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    The Exchange believes that the proposed rebate amounts are 
reasonable as they are comparable to the rebates or reduced rates 
offered under similar volume-based incentive programs offered in the 
Fees Schedule.\19\ For example, the Liquidity Provider Sliding Scale 
provides a reduced fee of between $0.17 to $0.03 per contract for 
Market-Maker orders (which are assessed a standard rate of $0.23 per 
contract) where a Market-Maker meets certain volume thresholds, a 
reduction of which the Exchange believes is comparable to the proposed 
rebates that range from $0.01 to $0.06. The Exchange also believes that 
it is reasonable to offer higher rebates for Non-Firm Facilitated order 
flow than for Firm Facilitated order flow (i.e., where the same 
executing broker and clearing firm are on both sides of the 
transaction) because it wishes to further incentivize order flow that 
attracts contra-side interest from a wider variety of market 
participants, which may further contribute towards a robust, well-
balance market ecosystem. Further, Firm Facilitated orders (i.e., 
orders yielding fee code FF) are not currently charged any fees, as 
compared to Non-Firm Facilitated orders, which are assessed fees. The 
Exchange also notes that excluding Underlying Symbol List A, Sector 
Indexes, DJX, MRUT, MXEA, MXEF and XSP from the proposed program (thus, 
incentivizing increased order flow in multiply-listed options), as well 
as aggregating a TPH's volume with the volume of its affiliates for the 
purposes of calculating Step-Up Volume each month, is consistent with 
the manner in which other incentive programs under the Fees Schedule 
exclude the same products \20\ and/or aggregate volume and credits.\21\ 
Additionally, the Exchange notes that Floor Brokers already have an

[[Page 31359]]

opportunity to receive discounts on their fees for certain proprietary 
products under the Floor Brokerage Fees Discount Scale.\22\
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    \19\ See supra note 16.
    \20\ See e.g., Cboe Options Fees Schedule, Liquidity Provider 
Sliding Scale, Break-Up Credits table, Order Routing Subsidy 
Program, and Complex Order Routing Subsidy Program.
    \21\ See e.g., Cboe Options Fees Schedule, Volume Incentive 
Program (VIP), Affiliate Volume Plan, QCC Rate Table, and Market-
Maker EAP Appointments Sliding Scale.
    \22\ See Cboe Options Fees Schedule, Floor Brokerage Fees 
Discount Scale.
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    In addition to this, the Exchange believes that the proposed update 
to the definition of facilitation orders in footnote 11 of the Fees 
Schedule is reasonable because it is designed to ensure and make clear 
that post-trade edits to orders will be considered in determining 
whether an order qualifies as a facilitation order and is appended fee 
code FF and the appropriate corresponding fees or fee waiver. The 
Exchange believes that it is appropriate to determine, for the purposes 
of the Fees Schedule, whether a transaction is considered a 
facilitation order following any same day post-trade updates made to 
the transaction because such post-trade edits may potentially alter 
whether the same executing broker and clearing firm are on both sides 
of a transaction, which is required in order for a transaction to 
qualify as a facilitation order. The proposed rule change is reasonable 
as it does not alter the definition of a facilitation order but merely 
clarifies the point at which the System will evaluate whether a 
transaction qualifies as such.
    The Exchange believes that the proposed Floor Broker Sliding Scale 
Rebate Program represents an equitable allocation of fees and is not 
unfairly discriminatory because the Program, as proposed, will apply 
uniformly to all qualifying TPHs, in that all TPHs that submit the 
requisite order flow (i.e., Non-Customer, Non-Strategy, Floor Broker 
Volume in multiply-listed options) have the opportunity to compete for 
and achieve the proposed tiers. The proposed rebates will apply 
automatically and uniformly to all TPHs that achieve the proposed 
corresponding criteria. The Exchange believes that the application of 
the proposed Program to TPHs that submit Non-Customer order flow is 
equitable and not unfairly discriminatory because such market 
participants provide unique and important liquidity to the Exchange's 
trading floor. Such order flow, as described above, may result in 
overall tighter spreads, attracting order flow from other market 
participants, more execution opportunities at improved prices, and/or 
deeper levels of liquidity, which may ultimately improve price 
transparency, provide continuous trading opportunities and enhance 
market quality on the Exchange, to the benefit of all market 
participants. The Exchange also notes that the Fees Schedule currently 
provides for many other incentive opportunities and rebate or reduced 
fee opportunities for Customer orders.\23\
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    \23\ See generally Cboe Options Fee Schedule, which generally 
assesses lower transaction fees for Customer orders as compared to 
other capacities; see also Cboe Options Fee Schedule, Customer Large 
Trade Discount, Break-Up Credits table, Select Customer Options 
Reduction (``SCORe'') Program, and QCC Rate Table.
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    In addition to this, while the Exchange has no way of knowing 
whether this proposed rule change would definitively result in any 
particular TPH qualifying for the proposed tiers, the Exchange believes 
that at least five TPHs will reasonably be able to compete for and 
achieve the proposed criteria across the four proposed tiers by 
submitting the requisite volume. The Exchange notes, however, that the 
proposed tiers are open to any TPH that submits the requisite order 
flow to satisfy the tiers' criteria. The Exchange also does not believe 
the proposed tiers will adversely impact any TPH's pricing or ability 
to qualify for other fee programs. Rather, should a TPH not meet the 
criteria in any of the proposed tiers, the TPH will merely not receive 
the corresponding rebate.
    Finally, the Exchange believes that the proposed update to the 
definition of a facilitation order in footnote 11 of the Fees Schedule 
is equitable and not unfairly discriminatory because it will continue 
to apply the fee code FF (Facilitation Firm) automatically and 
uniformly to all orders that qualify as facilitation orders. The 
proposed update just clarifies that a transaction will be evaluated as 
to whether it qualifies as a facilitation order for the purposes of the 
Fees Schedule after any same day, post-trade edits are made to that 
transaction. The Exchange believes that considering potential post-
trade edits made on the same trade date will more appropriately capture 
whether a transaction has the same executing broker and clear firm on 
both sides of the trade.

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 intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
Rather, as discussed above, the Exchange believes that the proposed 
change would encourage the submission of additional liquidity to the 
floor of a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution and price 
improvement opportunities for all TPHs. As a result, the Exchange 
believes that the proposed change furthers the Commission's goal in 
adopting Regulation NMS of fostering competition among orders, which 
promotes ``more efficient pricing of individual stocks for all types of 
orders, large and small.'' \24\
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    \24\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed Floor Broker Sliding Scale Rebate Program will apply equally 
to all similarly situated TPHs that submit the requisite order flow. 
That is, the proposed fees will apply equally to all Non-Customer, Non-
Strategy, Floor Broker orders in multiply-listed options. The Exchange 
does not believe that the application of the proposed Program to Non-
Customer orders will impose any significant burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the Exchange recognizes that Non-Customer 
participation in the markets is essential to a robust hybrid market 
ecosystem as each contributes unique and important liquidity to the 
Exchange's trading floor, as described above. Such Non-Customer order 
flow may result in overall tighter spreads, attracting order flow from 
other market participants, more execution opportunities at improved 
prices, and/or deeper levels of liquidity, which may ultimately improve 
price transparency, provide continuous trading opportunities and 
enhance market quality on the Exchange, to the benefit of all market 
participants. The Exchange again notes that the Fees Schedule currently 
provides for many other incentive opportunities and rebate or reduced 
fee opportunities for Customer orders.\25\ The Exchange also does not 
believe that the update to the definition of facilitation orders will 
impose any significant burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because it will continue to apply the fee code FF (Facilitation Firm) 
automatically and uniformly to all orders that qualify as facilitation 
orders. As stated above, the proposed update merely clarifies that a 
transaction will be evaluated as to whether it qualifies as a 
facilitation order following any same day, post-

[[Page 31360]]

trade edits, which will more appropriately capture whether a 
transaction has the same executing broker and clear firm on both sides 
of the trade.
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    \25\ See supra note 21.
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    The Exchange also does not believe that the proposed changes will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the Act because, as noted above, 
competing options exchanges have similar incentive programs and 
discount opportunities in place in connection with floor broker order 
flow.\26\ The Exchange notes that the proposed update in connection 
with facilitation orders is not competitive in nature and merely 
clarifies a step in the billing process for qualifying facilitation 
orders. Additionally, and as previously discussed, the Exchange 
operates in a highly competitive market. TPHs have numerous alternative 
venues that they may participate on and direct their order flow, 
including 15 other options exchanges, many of which offer substantially 
similar price improvement auctions. Based on publicly available 
information, no single options exchange has more than 16% of the market 
share.\27\ Therefore, no exchange possesses significant pricing power 
in the execution of option order flow. Indeed, participants can readily 
choose to send their orders to other exchange, and, additionally 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.'' \28\ 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'. . . .''.\29\ 
Accordingly, the Exchange does not believe its proposed fee change 
imposes any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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    \26\ See supra notes 15 [sic] and 17.
    \27\ See supra note 3.
    \28\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \29\ 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 \30\ and paragraph (f) of Rule 19b-4 \31\ 
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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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 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<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4"><span class="__cf_email__" data-cfemail="6113140d044c020e0c0c040f1512211204024f060e17">[email protected]</span></a>. Please 
include File Number SR-CBOE-2021-037 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 Number SR-CBOE-2021-037. 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 Number SR-CBOE-2021-037 and should be submitted on 
or before July 2, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12248 Filed 6-10-21; 8:45 am]
BILLING CODE 8011-01-P


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