Document ID: SEC-2020-0022-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-01-07T05:00Z

[Federal Register Volume 85, Number 4 (Tuesday, January 7, 2020)]
[Notices]
[Pages 754-756]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28534]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87873; File No. SR-CBOE-2019-127]

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

December 31, 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 December 20, 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 adopt certain linkage fee codes. 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's Fees Schedule currently provides for fee codes for 
Routing Fees. In particular, the Fees Schedule currently lists fee 
codes and their corresponding transaction fee for routed Customer 
orders to other options exchanges specifically in Exchange Traded Funds 
(``ETF'') and equity options, and for non-Customer orders routed in 
Penny and Non-Penny options classes. The Exchange notes that in 
connection with a recent technology migration (including the migration 
of the Exchange's billing system to a new

[[Page 755]]

billing system), the Exchange amended and updated a majority of its 
Fees Schedule,\3\ which became effective upon the technology 
migration.\4\ Prior to the migration-related amendments and updates, 
the Fees Schedule had provided for a general transaction fee assessed 
for all routed Customer orders in all options classes. More 
specifically, it had provided that for Customer orders, in addition to 
the customary Cboe Options execution charges for each Customer order 
that is routed, the Exchange passed through the actual transaction fee 
assessed by the exchange(s) to which the order was routed plus an 
additional $0.15 per contract.
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    \3\ See Securities and Exchange Act Release No. 87495 (November 
8, 2019), 84 FR 63701 (November 18, 2019) (SR-CBOE-2019-106).
    \4\ In 2016, the Exchange's parent company, Cboe Global Markets, 
Inc. (formerly named CBOE Holdings, Inc.) (``Cboe Global''), which 
is also the parent company of Cboe C2 Exchange, Inc. (``C2''), 
acquired Cboe EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, 
Inc. (``EDGX'' or ``EDGX Options''), Cboe BZX Exchange, Inc. 
(``BZX'' or ``BZX Options''), and Cboe BYX Exchange, Inc. (``BYX'' 
and, together with Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe 
Affiliated Exchanges''). Cboe Options migrated its trading platform 
to the same system used by the Cboe Affiliated Exchanges on October 
7, 2019.
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    In light of the migration, the Exchange amended, among other 
things, the general routing fee for Customer orders to instead provide 
for an exact charge for routing per specific types of transaction and a 
particular corresponding fee code, which currently exists in the Fees 
Schedule today. The Exchange, however, inadvertently did not adopt a 
fee code for Customer orders routed in index options, which the 
Exchange had intended to adopt in the migration-related Fee Schedule 
amendments along with the fee codes currently in place for Customer 
orders routed in ETF and equity options, as the general routing fee for 
Customer orders contained in the Fees Schedule prior to migration was 
assessed for orders in all option classes. As such, the Exchange now 
proposes to adopt fee codes and reinstate fees in connection with 
Customer orders routed in index options. Particularly, the Exchange 
proposes to adopt fee code ``RX'', which would be appended to Customer 
orders routed in Mini-SPX Index (``XSP'') options \5\ and assessed a 
fee of $0.19, and fee code ``RS'', which would be appended to Customer 
orders routed in all other index options \6\ and assessed a fee of 
$0.48. The Exchange notes that the routing rates for routed Customer 
orders in index options, as proposed, would not change from when such 
fees were in place prior to the migration-related amendments to the 
Fees Schedule, but rather, would be expressed as their specific, single 
rates by combining the $0.15 per contract fee plus the customary Cboe 
Options Customer execution charges (i.e., $0.04 for XSP options and 
$0.18 in all other index options) and the actual transaction fee 
assessed by the Exchange to which the order was routed (i.e., $0.00 for 
EDGX Options, to which orders in XSP options may be routed, and $0.15 
for C2 and BZX Options, to which orders in all other index options may 
be routed).\7\ The Exchange also notes that this specific single rate 
is consistent with the manner in which fee codes for Customer orders in 
ETF and equity options are currently provided in the Fees Schedule. The 
Exchange notes that other exchanges, including its affiliated 
exchanges, assess routing fees expressed as a single fee for routed 
Customer orders and that the proposed fees are in line with, and 
generally lower than, those fees.\8\
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    \5\ The Exchange notes the XPS options may be routed to its 
affiliated exchange, Cboe EDGX Exchange, Inc. (``EDGX Options''), as 
EDGX Options also lists XSP options.
    \6\ The Exchange notes that all other index options include 
Russell 2000 Index (``RUT'') and Dow Jones Industrial Average Index 
(``DJX'') options. Orders in RUT options may be routed to the 
Exchange's affiliates, Cboe C2 Exchange, Inc. (``C2'') and Cboe BZX 
Exchange, Inc. (``BZX Options''), as these exchanges also list RUT 
options, and orders in DJX options may be routed to C2, as C2 also 
lists RUT options.
    \7\ See supra note 5 and 6.
    \8\ See Cboe C2 Options Exchange Fee Schedule, which assesses a 
fee of $0.85 per routed Customer order in both RUT and DJX options; 
Cboe BZX Options Exchange Fee Schedule, which also assesses a fee of 
$0.85 per routed Customer order in RUT options; Cboe EDGX Exchange 
Fee Schedule, which assesses a fee of $0.25 for routed Customer 
orders in XSP options. See also MIAX Options Fees Schedule which 
assesses $0.65 per routed Customer order in penny classes and $0.15 
in non-penny classes.
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    In addition, the Exchange also proposes to amend certain language 
in the Fees Schedule under the Frequent Trader Program table. 
Specifically, the Fees Schedule currently provides that the Exchange 
will disperse a customer's rebates pursuant to the customer's 
instructions, which may include receiving the rebates as a direct 
payment or via a distribution to one or more of its Clearing Trading 
Permit Holders. The Exchange notes that the integrated post-migration 
billing system does not currently offer distribution to Clearing 
Trading Permit Holder, therefore the Exchange proposed to remove this 
payment method in connection with the Frequent Trader Program. As such, 
the proposed change is designed to amend language in the Fees Schedule 
in order to accurately reflect the manner in which the billing system 
currently functions. Additionally, the Exchange notes that prior to the 
migration-related changes made to the billing system the Exchange 
generally dispersed all customers' rebates as direct payments.
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.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ 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 
Section 6(b)(4) of the Act,\11\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes the proposed fee codes for Customer 
orders routed in index options are reasonable and equitable because 
such fees would be reinstated for the same amount they were previously 
assessed in the Fees Schedule, as the Exchange inadvertently omitted 
such fees, which were prior in place, when it made migration-related 
amendments and updates to a majority of its Fees Schedule. As a result, 
the proposed fee codes would alleviate potential confusion and provide 
clarity for market participants by ensuring the continuation of fees 
that were not intended, nor announced, to be discontinued. As stated, 
the manner in which the proposed single fee rates for Customer orders 
routed in index options would be provided in the Fees Schedule is 
consistent with the manner in which the routed fee rates are currently 
provided for Customer orders routed in ETF and equity options. The 
Exchange also believes its proposed fees in connection with Customer 
orders routed in index options are reasonable as the

[[Page 756]]

proposed fees take into account routing costs, as they did when 
previously in place, and are in line with amounts assessed and 
presented as single fee rates by other exchanges, including its 
affiliated exchanges.\12\
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    \12\ See supra note 5 [sic].
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    The Exchange believes the proposed routing fees are equitable and 
not unfairly discriminatory because the proposed fees apply equally to 
all Customers who choose to use the Exchange to route orders in index 
options (either in XSP or all other index options). The Exchange 
highlights that routing through the Exchange is voluntary and that it 
operates in a highly competitive market in which market participants 
can readily direct order flow to competing venues or providers of 
routing services if they deem fee levels to be excessive.
    Additionally, the Exchange believes that the proposed change to 
remove the Frequent Trader Program payment method in connection with 
distributions to Clearing Trading Permit Holders is reasonable because 
it is intended to accurately reflect the payment methods currently 
offered by the billing system post-migration, thereby providing for 
clarity in the Fees Schedule and mitigating any potential confusion 
surrounding the Frequent Trader Program payment options. The Exchange 
also notes that the proposed change would not significantly impact 
investors as prior to the migration the Exchange generally only 
dispersed customer's rebates as a direct payment. The proposed change 
would have no impact on the ability of customer's to receive their 
payments. The Exchange further believes that the proposed rule change 
is equitable and not unfairly discriminatory because, as proposed, the 
same payment method would apply equally to all Frequent Trader Program 
customer rebates.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that the 
proposed change to the payment methods in connection with its Frequent 
Trader Program does not involve or impact trading on the Exchange, and 
is merely intended to clarify the manner in which the Exchange's 
billing system currently functions.
    Further, the Exchange does not believe that the proposed fee codes 
would impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because the proposed changes would, again, be applied equally to all 
Customer orders routed in index options. As stated, 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 rule change would merely reinstate an 
inadvertently omitted fee in order to continue to reflect a competitive 
pricing structure designed to incentivize market participants to direct 
their order flow to the Exchange, which the Exchange believes enhances 
market quality to the benefit of all TPHs. The Exchange does not 
believe that the proposed rule change would impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed fee codes 
are not intended as a competitive change, as these fees were prior in 
place in the Fees Schedule and recently removed inadvertently. As such, 
the proposed rule change is corrective and clarifying in nature.

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 \13\ and paragraph (f) of Rule 19b-4 \14\ 
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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 rule-comments@sec.gov. Please include 
File Number SR-CBOE-2019-127 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-2019-127. 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-2019-127 and should be submitted on 
or before January 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28534 Filed 1-6-20; 8:45 am]
BILLING CODE 8011-01-P