Document ID: SEC-2019-0478-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-04-16T04:00Z

[Federal Register Volume 84, Number 73 (Tuesday, April 16, 2019)]
[Notices]
[Pages 15656-15657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07501]

[[Page 15656]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85592; File No. SR-CBOE-2019-019]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend the Select Customer Options Reduction Program

April 10, 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 March 29, 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.
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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 the Select Customer Options Reduction program. 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 the Select Customer Options 
Reduction program (``SCORe'') to (i) eliminate the use of product 
multipliers and (ii) increase certain discounts.\3\ By way of 
background, SCORe is a discount program for Retail,\4\ Non-FLEX 
Customer (``C'' origin code) volume in the following options classes: 
SPX (including SPXW), VIX, RUT, MXEA, MXEF & XSP (``Qualifying 
Classes''). The SCORe program is available to any Trading Permit Holder 
(``TPH'') Originating Clearing Firm or non-TPH Originating Clearing 
Firm that sign up for the program.\5\ The SCORe program currently 
utilizes two measures for participation and discounts: (1) The 
Qualifying Tiers, which determine whether a firm qualifies for the 
discounts in either Tier A or Tier B and (2) the Discount Tiers, which 
determine the Originating Firm's applicable discount tiers and 
corresponding discounts.
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    \3\ The proposed SCORe amendments will be effective April 1, 
2019.
    \4\ For purposes of the program ``Retail'' orders will be 
defined as Customer orders for which the original order size (in the 
case of a simple order) or largest leg size (in the case of a 
complex order) is 100 contracts or less.
    \5\ For this program, an ``Originating Clearing Firm'' is 
defined as either (a) the executing clearing Options Clearing 
Corporation (``OCC'') number on any transaction which does not also 
include a Clearing Member Trading Agreement (``CMTA'') OCC clearing 
number or (b) the CMTA in the case of any transaction which does 
include a CMTA OCC clearing number.
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    To determine an Originating Firm's Qualifying Tier, the Originating 
Firm's total Retail volume in the Qualifying Classes will be divided by 
the Originating Firm's total Customer volume, Retail and non-Retail, in 
the Qualifying Classes. If an Originating Firm's Retail volume is 
between 20.00% and 69.99%, the Originating Firm will qualify for Tier B 
discounts. If an Originating Firm's Retail volume is at or above 
70.00%, the Originating Firm will qualify for Tier A discounts. The 
Qualifying Tier that is applied in a given month is based on an 
Originating Firm's Retail volume in the prior month (e.g., an 
Originating Firm's volume in March determines which Qualifying Tier 
applies in April).\6\
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    \6\ For example, in March, if an Originating Firm executes a 
total of 1,000,000 Customer (C) contracts in the Qualifying Classes, 
of which 600,000 contracts qualify as Retail volume, the Originating 
Firm would have a retail percentage of 60% and qualifies for the B 
Tier discounts to be applied to the Originating Firm's qualifying 
Retail Customer volume in April.
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    For the Discount Tier, an Originating Firm's Retail volume in the 
Qualifying Classes is divided by total Retail volume in the Qualifying 
Classes executed on the Exchange. Additionally, SCORe employs the use 
of ``product multipliers'' for the Discount Tier only. Multipliers are 
applied to MXEF, MXEA, RUT and XSP volume only. Specifically, Retail 
volume in these products are currently multiplied by the values set 
forth in the Fees Schedule so that any volume executed by an 
Originating Firm in these classes will be increased for purposes of the 
Discount Tier calculation, but not for purposes of calculating the 
Qualifying Tiers. Additionally, discounts are applied to executed 
volume only, not on multiplied volume. The Exchange no longer wishes to 
maintain multipliers in the SCORe program. As such, the Exchange 
proposes to amend the Fees Schedule to eliminate the multipliers for 
MXEF, MXEA, RUT and XSP.
    The Exchange next proposes to increase the discounts in Qualifying 
Tiers A3-A1. Specifically, the Exchange proposes to increase Tier A3 
from $0.15 per contract to $0.17 per contract; increase Tier A2 from 
$0.19 per contract to $0.21 per contract; and Tier A1 from $0.23 per 
contract to $0.25 per contract. The Exchange notes the proposed 
discount increases are designed to attract a greater number of customer 
orders in the Qualifying Classes. This increased volume creates greater 
trading opportunities that benefit all market participants by providing 
more trading opportunities and tighter spreads. The Exchange also 
believes the proposed changes continue to provide an incremental 
incentive for Originating Firms to strive for the highest tier level, 
which provides increasingly higher discounts.
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.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ 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

[[Page 15657]]

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 Section 6(b)(4) of the Act,\9\ 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.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(4).
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    First, the Exchange believes the proposal to eliminate the 
availability of product multipliers is reasonable because it no longer 
wishes to offer this additional incentive for order flow in the 
multiplier classes and it is not required to do so. The Exchange also 
notes that such multipliers were only used for purposes of the Discount 
Tier calculation. The Exchange believes the proposed changes to Tiers 
A3-A1 are reasonable because it provides higher discounts for 
satisfying the qualifying thresholds. Further, the Exchange believes 
the proposed discounts are commensurate with the corresponding 
qualifying thresholds. As noted above, the Exchange believes SCORe 
continues to provide an incremental incentive for Originating Firms to 
strive for the highest tier level, which provides increasingly higher 
discounts. The proposed increased discounts are designed to encourage 
increased Retail volume in the Qualifying Classes, which provides 
increased volume and greater trading opportunities for all market 
participants. The Exchange believes the proposed change is equitable 
and not unfairly discriminatory because the qualifying volume 
thresholds apply to all registered Originating Firms uniformly.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed changes 
apply to all registered Originating Firms uniformly. The Exchange 
believes that the proposed rule change will not cause an unnecessary 
burden on intermarket competition because the Qualifying Classes are 
products that only trade on Cboe Options. To the extent that the 
proposed changes make the Exchange 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 \10\ and paragraph (f) of Rule 19b-4 \11\ 
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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2019-019 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-2019-019. 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 such 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-2019-019, and should be submitted 
on or before May 7, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07501 Filed 4-15-19; 8:45 am]
 BILLING CODE 8011-01-P