Document ID: SEC-2019-0131-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-02-15T05:00Z

[Federal Register Volume 84, Number 32 (Friday, February 15, 2019)]
[Notices]
[Pages 4562-4565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02395]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85100; File No. SR-CBOE-2019-002]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to Establish Fees for a Recently Added Option That Overlies the S&P 
Select Sector Index Options (``Sector Index options'')

February 11, 2019.
    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 February 5, 2019, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 establish fees for a recently added option that overlies the S&P 
Select Sector Index options (``Sector Index options''). 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
    On October 4, 2017, the Exchange submitted a proposed rule change 
to amend certain rules in connection with listing ten S&P Select Sector 
Index \3\ options under generic narrow-based listing standards, which 
became effective on November 3, 2017.\4\ On March 1, 2018, the Exchange 
established fees for Sector Index options.\5\ On October 15, 2018, the 
Exchange amended its rules to authorize the Exchange to list for 
trading options on a recently added eleventh S&P Select Sector Index--
the S&P Communication Services Select Sector Index (``SIXC'').\6\ The 
Exchange proposes to establish fees for SIXC. The proposed fees for 
SIXC will be the same as the fees previously established for the 
original ten Sector Indexes.
---------------------------------------------------------------------------

    \3\ There are ten S&P Select Sector Indexes: S&P Financial 
Select Sector Index (IXM), S&P Energy Select Sector Index (IXE), S&P 
Technology Select Sector Index (IXT), S&P Health Care Select Sector 
Index (IXV), S&P Utilities Select Sector Index (IXU), S&P Consumer 
Staples Select Sector Index (IXR), S&P Industrials Select Sector 
Index (IXI), S&P Consumer Discretionary Select Sector Index (IXY), 
S&P Materials Select Sector Index (IXB), and S&P Real Estate Select 
Sector Index (IXRE). The options listing symbols for options 
overlying these indexes will be: SIXM, SIXE, SIXT, SIXV, SIXU, SIXR, 
SIXI, SIXY, SIXB, and SIXRE, respectively.
    \4\ See Securities Exchange Act Release No. 81879 (October 16, 
2017), 82 FR 48858 (October 20, 2017) (SR-CBOE-2017-065).
    \5\ See Securities Exchange Act Release No. 82854 (March 16, 
2018), 83 FR 11803 (March 16, 2018) (SR-CBOE-2018-012).
    \6\ See Securities Exchange Act Release No. 84490 (October 25, 
2018), 83 FR 54796 (October 31, 2018) (SR-CBOE-2018-067).
---------------------------------------------------------------------------

    By way of background, a specific set of proprietary products are 
commonly included or excluded from a variety of programs, qualification 
calculations and transaction fees. In lieu of listing out these 
products in various sections of the Fees Schedule, the Exchange uses 
the term ``Underlying Symbol List A'' to represent these products.\7\ 
The Exchange notes the reason the products in Underlying Symbol List A 
are often collectively included or excluded from certain programs, 
qualification calculations and transactions fees is because the 
Exchange has expended considerable resources developing and maintaining 
its proprietary, exclusively listed products. Similar to the products 
currently represented by ``Underlying

[[Page 4563]]

Symbol List A,'' Sector Index options are not listed on any other 
exchange. As such, the Exchange established fees for Sector Index 
options similar to those applicable to options overlying the indexes in 
Underlying Symbol List A, as well as similarly excluding those options 
from several programs from products in Underlying Symbol List A are 
excluded. In lieu of listing out these products in various sections of 
the Fees Schedule, the Exchange refers to Sector Indexes in the Fees 
Schedule (which is defined in footnote 47). The Exchange proposes to 
add a reference to ``SIXC'' to footnote 47 of the Fees Schedule.
---------------------------------------------------------------------------

    \7\ Currently, Underlying Symbol List A is defined in Footnote 
34 and represents the following proprietary products: OEX, XEO, RUT, 
RLG, RLV, RUI, AWDE, FTEM, FXTM, UKXM, SPX (including SPXW), VIX, 
VOLATILITY INDEXES and binary options.
---------------------------------------------------------------------------

    Like products in Underlying Symbol List A and the current Sector 
Indexes, the Exchange proposes to except SIXC options from the Volume 
Incentive Program (``VIP''),\8\ the Marketing Fee,\9\ the Clearing 
Trading Permit Holder Fee Cap (``Fee Cap''),\10\ exemption from fees 
for facilitation orders,\11\ the AIM Contra Execution Fee,\12\ the 
CFLEX AIM Response Fee,\13\ the Clearing Trading Permit Holder 
Proprietary and/or their Non-Trading Permit Holder Affiliates 
transaction fee cap for all non-facilitation business executed in AIM 
or open outcry, or as a QCC or FLEX transaction,\14\ the Order Router 
Subsidy (``ORS'') and Complex Order Router Subsidy (``CORS'') 
Programs,\15\ the per contract per side surcharge for noncustomer 
complex order executions that remove liquidity from the COB and auction 
response in the complex order auction and AIM,\16\ and the calculation 
of qualifying volume for rebates for Floor Broker Trading Permit Holder 
Trading Permit Fees.\17\
---------------------------------------------------------------------------

    \8\ See Cboe Options Fees Schedule, Volume Incentive Program 
(VIP) table and Footnote 36.
    \9\ See Cboe Options Fees Schedule, Footnote 6.
    \10\ See Cboe Options Fees Schedule, Footnote 11.
    \11\ See Cboe Options Fees Schedule, Footnotes 11 and 12.
    \12\ See Cboe Options Fees Schedule, Footnote 18.
    \13\ See Cboe Options Fees Schedule, Footnote 20.
    \14\ See Cboe Options Fees Schedule, Footnote 22.
    \15\ See Cboe Options Fees Schedule, Order Router Subsidy 
Program and Complex Order Router Subsidy Program table and Footnotes 
29 and 30.
    \16\ See Cboe Options Fees Schedule, Footnote 35.
    \17\ See Cboe Options Fees Schedule, Footnote 25.
---------------------------------------------------------------------------

    Like the other Sector Indexes, the Exchange does intend to apply to 
SIXC options the Liquidity Provider Sliding Scale.\18\ The Exchange 
proposes to apply to SIXC options the Liquidity Provider Sliding Scale 
to encourage Market-Makers to provide liquidity in these classes and 
believes that including them in this sliding scale will provide such 
incentive.
---------------------------------------------------------------------------

    \18\ See Cboe Options Fees Schedule, Specified Proprietary Index 
Options Rate Table--Underlying Symbol List A and Sector Indexes.
---------------------------------------------------------------------------

    The Exchange next proposes to establish transaction fees for SIXC 
options, which will be the same as the transaction fees for the other 
10 Sector Indexes. Particularly, the Exchange proposes to assess the 
same fees for SIXC options as apply to the original Sector Index 
options, OEX Weekly and XEO Weekly options, except for Market-Maker 
transaction fees, which will be subject to the Liquidity Provider 
Sliding Scale as described above, and except for Clearing Trading 
Permit Holder Proprietary transactions, which will be $0.25 rather than 
subject to the Proprietary Products Sliding Scale for Clearing Trading 
Permit Holder Proprietary Orders. Transaction fees for SIXC options 
will be as follows (all listed rates are per contract): \19\
---------------------------------------------------------------------------

    \19\ See id.

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Customer (origin code C)....................  $0.30.
Clearing Trading Permit Holder Proprietary    $0.25.
 (origin codes F and L).
Market-Maker (origin code M)................  Liquidity Provider Sliding Scale.
Joint Back-Office, Broker-Dealer, Non-        $0.40.
 Trading Permit Holder Market-Maker,
 Professional/Voluntary Professional (origin
 codes BNWJ).
----------------------------------------------------------------------------------------------------------------

    The Exchange also proposes to apply to SIXC options the CFLEX 
Surcharge Fee of $0.10 per contract for all Sector Index option orders 
executed electronically on CFLEX, capped at $250 per trade (i.e., first 
2,500 contracts per trade).\20\ The CFLEX Surcharge Fee assists the 
Exchange in recouping the cost of developing and maintaining the CFLEX 
system. The Exchange notes that the CFLEX Surcharge Fee (and $250 cap) 
also applies to other proprietary index options, including the original 
ten Sector Indexes and products in Underlying Symbol List A.
---------------------------------------------------------------------------

    \20\ See id.
---------------------------------------------------------------------------

    The Exchange currently assesses an Index License Surcharge of $0.10 
per contract for all non-customer orders for Sector Indexes and 
products in the Underlying Symbol A except RUT and SPX. The Exchange 
proposes to assess a Surcharge of $0.10 per contract in order to recoup 
the costs associated with the Sector Index license.
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.\21\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \22\ 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) \23\ 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) of the Act,\24\ which 
requires that Exchange rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among its Trading Permit 
Holders and other persons using its facilities.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ Id.
    \24\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    Particularly, the Exchange believes it is reasonable to charge 
different fee amounts to different user types in the manner proposed 
because the proposed fees are consistent with the price differentiation 
that exists today for the previously adopted Sector Indexes, as well as 
other index products, including those in Underlying Symbol A. The 
Exchange also believes that the proposed fee amounts for SIXC option 
orders are reasonable because as previously discussed, the proposed fee 
amounts are the same as the fees already established for Sector Indexes 
and are also assessed for other proprietary products (i.e. OEX Weeklys 
and XEO Weeklys). The proposed fee amounts are also within the range of 
amounts

[[Page 4564]]

assessed for the Exchange's other proprietary products.\25\
---------------------------------------------------------------------------

    \25\ See Cboe Options Fees Schedule, Specified Proprietary Index 
Options Rate Table--Underlying Symbol A and Sector Indexes.
---------------------------------------------------------------------------

    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess lower fees to Customers as compared to certain 
other market participants except Market-Makers and Clearing Trading 
Permit Holders because Customer order flow enhances liquidity on the 
Exchange for the benefit of all market participants. Specifically, 
customer liquidity benefits all market participants by providing more 
trading opportunities, which attracts Market-Makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. The fees offered to customers are 
intended to attract more customer trading volume to the Exchange. 
Moreover, the options industry has a long history of providing 
preferential pricing to Customers, and the Exchange's current Fees 
Schedule currently does so in many places, as do the fees structures of 
many other exchanges. Finally, all fee amounts listed as applying to 
Customers will be applied equally to all Customers (meaning that all 
Customers will be assessed the same amount).
    The Exchange believes that it is equitable and not unfairly 
discriminatory to, assess lower fees to Market-Makers pursuant to the 
Liquidity Provider Sliding Scale as compared to other market 
participants because Market-Makers, unlike other market participants, 
take on a number of obligations, including quoting obligations that 
other market participants do not have. Further, these lower fees 
offered to Market-Makers are intended to incent Market-Makers to quote 
and trade more on the Exchange, thereby providing more trading 
opportunities for all market participants. Additionally, the proposed 
fee for Market-Makers will be applied equally to all Market-Makers 
(meaning that all Market-Makers will be subject to the Liquidity 
Provider Sliding Scale). This concept also applies to orders from all 
other origins. It should also be noted that all fee amounts described 
herein are intended to attract greater order flow to the Exchange in 
SIXC options, which should therefore serve to benefit all Exchange 
market participants.
    Similarly, it is equitable and not unfairly discriminatory to 
assess lower fees to Clearing Trading Permit Holder Proprietary orders 
than those of other market participants (except Market-Makers) because 
Clearing Trading Permit Holders also have a number of obligations (such 
as membership with the Options Clearing Corporation), significant 
regulatory burdens, and financial obligations, that other market 
participants do not need to take on. The Exchange also notes that the 
SIXC option fee amounts for each separate type of market participant 
will be assessed equally to all such market participants (i.e., all 
Broker-Dealer orders will be assessed the same amount, all Joint Back-
Office orders will be assessed the same amount, etc.). The Exchange 
believes the proposed transaction fee of $0.25 per contract for 
Clearing Trading Permit Holders is reasonable, equitable, and not 
unfairly discriminatory because is comparable to the amount of 
transaction fees for Clearing Trading Permit Holders in other 
proprietary products.\26\
---------------------------------------------------------------------------

    \26\ See Cboe Options Fee Schedule, Cboe Options Clearing 
Trading Permit Holder Proprietary Products Sliding Scales Table. The 
maximum transaction fee per contract in the Table B (related to the 
VIX Sliding Scale) part of that table is $0.25.
---------------------------------------------------------------------------

    The Exchange believes the proposed transaction fees for Brokers 
Dealers, Non-Trading Permit Holder Market-Makers, Professionals/
Voluntary Professionals, JBOs and Customers are reasonable because they 
are the same as those assessed for transactions in certain other 
proprietary products.\27\ The Exchange also notes that the SIXC option 
fee amounts for each separate type of market participant will be 
assessed equally to all such market participants (i.e., all Broker-
Dealer orders will be assessed the same amount, all Joint Back-Office 
orders will be assessed the same amount, etc.).
---------------------------------------------------------------------------

    \27\ Id.
---------------------------------------------------------------------------

    The Exchange believes that assessing an Index License Surcharge Fee 
of $0.10 per contract to SIXC option transactions is reasonable because 
the Surcharge helps recoup some of the costs associated with the 
license for Sector Index options, including SIXC. Additionally, the 
Exchange notes that the Surcharge amount is the same as, and in some 
cases lower than, the amount assessed as an Index License Surcharge to 
other index products. The proposed Surcharge is also equitable and not 
unfairly discriminatory because the amount will be assessed to all 
market participants to whom the Surcharge applies. Not applying the 
SIXC License Surcharge Fee to Customer orders is equitable and not 
unfairly discriminatory because this is designed to attract Customer 
Sector Index option orders, which increases liquidity and provides 
greater trading opportunities to all market participants.
    Similarly, the Exchange believes assessing a CFLEX Surcharge Fee of 
$0.10 per contract for SIXC option orders executed electronically on 
CFLEX and capping it at $250 (i.e., first 2,500 contracts per trade) is 
reasonable because it is the same amount currently charged to other 
Sector Indexes and proprietary index products for the same 
transactions.\28\ The proposed Surcharge is also equitable and not 
unfairly discriminatory because the amount will be assessed to all 
market participants to whom the CFLEX Surcharge applies.
---------------------------------------------------------------------------

    \28\ See Cboe Options Fees Schedule, Index Options Rate Table--
All Index Products Excluding Underlying Symbol List A and Sector 
Indexes, CFLEX Surcharge Fee and Specified Proprietary Index Options 
Rate Table--Underlying Symbol List A and Sector Indexes, CFLEX 
Surcharge Fee.
---------------------------------------------------------------------------

    Excepting VIP, the Marketing Fee, the Fee Cap, exemption from fees 
for facilitation orders, the AIM Contra Execution Fee, the CFLEX AIM 
Response Fee, the Clearing Trading Permit Holder Proprietary and/or 
their Non-Trading Permit Holder Affiliates transaction fee cap for all 
non-facilitation business executed in AIM or open outcry, or as a QCC 
or FLEX transaction, the ORS and CORS Programs,\29\ the per contract 
per side surcharge for noncustomer complex order executions that remove 
liquidity from the COB and auction response in the complex order 
auction and AIM,\30\ and the calculation of qualifying volume for 
rebates for Floor Broker Trading Permit Holder Trading Permit Fees is 
reasonable because the original ten Sector Indexes, as well as other 
proprietary products are excepted from those same items. This is 
equitable and not unfairly discriminatory for the same reason; it seems 
equitable to except SIXC options from items on the Fees Schedule from 
which other Sector Indexes and proprietary products are also excepted.
---------------------------------------------------------------------------

    \29\ See Cboe Options Fees Schedule, Order Router Subsidy 
Program and Complex Order Router Subsidy Program table and Footnotes 
29 and 30.
    \30\ See Cboe Options Fees Schedule, Footnote 22.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. 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, while different fees 
are

[[Page 4565]]

assessed to different market participants in some circumstances, these 
different market participants have different obligations and different 
circumstances as discussed above. For example, Market-Makers have 
quoting obligations that other market participants do not have. The 
Exchange does not believe that the proposed rule changes will impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because SIXC 
options will be exclusively listed on Cboe Options. To the extent that 
the proposed changes make Cboe Options a more attractive marketplace 
for market participants at other exchanges, such market participants 
are welcome to become Cboe Options market participants.

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 \31\ and paragraph (f) of Rule 19b-4 \32\ 
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.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2019-002 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2019-002. 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-2019-002 and should be submitted on 
or before March 8, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02395 Filed 2-14-19; 8:45 am]
 BILLING CODE 8011-01-P