Document ID: SEC-2023-1043-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2023-09-22T04:00Z

[Federal Register Volume 88, Number 183 (Friday, September 22, 2023)]
[Notices]
[Pages 65412-65414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20519]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98420; File No. SR-CboeBZX-2023-071]

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

September 18, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 12, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and 
II, 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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
amend its Fee Schedule related to the Options Regulatory Fee. The text 
of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 increase the Options Regulatory Fee 
(``ORF'') from $0.0001 per contract to $0.0003 per contract.\3\
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    \3\ The Exchange initially filed the proposed fee change on 
September 1, 2023 (SR-CboeBZX-2023-066). On September 12, 2023, the 
Exchange withdrew that filing and submitted this filing.
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    The ORF is assessed by BZX Options to each Member for options 
transactions cleared by the Member that are cleared by the Options 
Clearing Corporation (``OCC'') in the customer range, regardless of the 
exchange on which the transaction occurs. In other words, the Exchange 
imposes the ORF on all customer-range transactions cleared by a Member, 
even if the transactions do not take place on the Exchange. The ORF is 
collected by OCC on behalf of the Exchange from the Clearing Member or 
non-Member that ultimately clears the transaction. With respect to 
linkage transactions, BZX Options reimburses its routing broker 
providing Routing Services (pursuant to BZX Options Rule 21.9) for 
options regulatory fees it incurs in connection with the Routing 
Services it provides.
    Revenue generated from ORF, when combined with all of the 
Exchange's other regulatory fees and fines, is designed to recover a 
material portion of the regulatory costs to the Exchange of the 
supervision and regulation of Member customer options business 
including performing routine surveillances, investigations,

[[Page 65413]]

examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. Regulatory costs include 
direct regulatory expenses and certain indirect expenses for work 
allocated in support of the regulatory function. The direct expenses 
include in-house and third-party service provider costs to support the 
day-to-day regulatory work such as surveillances, investigations and 
examinations. The indirect expenses include support from such areas as 
human resources, legal, compliance, information technology, facilities 
and accounting. These indirect expenses are estimated to be 
approximately 50.5% of BZX Options' total regulatory costs for 2023. 
Thus, direct expenses are estimated to be approximately 49.5% of total 
regulatory costs for 2023. In addition, it is BZX Options' practice 
that revenue generated from ORF not exceed more than 75% of total 
annual regulatory costs. These expectations are estimated, preliminary 
and may change. There can be no assurance that our final costs for 2023 
will not differ materially from these expectations and prior practice; 
however, the Exchange believes that revenue generated from the ORF, 
when combined with all of the Exchange's other regulatory fees and 
fines, will cover a material portion, but not all, of the Exchange's 
regulatory costs.
    The Exchange monitors its regulatory costs and revenues at a 
minimum on a semi-annual basis. If the Exchange determines regulatory 
revenues exceed or are insufficient to cover a material portion of its 
regulatory costs in a given year, the Exchange will adjust the ORF by 
submitting a fee change filing to the Commission. The Exchange also 
notifies Members of adjustments to the ORF via an Exchange Notice, 
including for the change being proposed herein.\4\ Based on the 
Exchange's most recent semi-annual review, the Exchange is proposing to 
increase the amount of ORF that will be collected by the Exchange from 
$0.0001 per contract side to $0.0003 per contract side. The proposed 
increase is based on the Exchange's estimated projections for its 
regulatory costs, which have increased.\5\ Particularly, based on the 
Exchange's estimated projections for its regulatory costs, the revenue 
being generated by ORF using the current rate, would result in 
projected revenue that is insufficient to cover a material portion of 
its regulatory costs (i.e., less than 75% of total annual regulatory 
costs). Further, when combined with the Exchange's projected other non-
ORF regulatory fees and fines, the revenue being generated by ORF using 
the current rate results is projected to result in combined revenue 
that is less than 100% of the Exchange's estimated regulatory costs for 
the year.
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    \4\ See Exchange Notice, C2023080104 ``Cboe BZX Options Exchange 
Regulatory Fee Update Effective September 1, 2023.'' The Exchange 
endeavors to provide at least 30 calendar days notice prior to any 
effective change to ORF.
    \5\ The Exchange notes that in connection with proposed ORF rate 
changes, it provides the Commission confidential details regarding 
the Exchange's projected regulatory revenue, including projected 
revenue from ORF, along with a breakout of its projected regulatory 
expenses, including both direct and indirect allocations.
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    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\7\ which provides that Exchange rules may provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its Members and other persons using its facilities. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed fee change is reasonable because 
it would help ensure that revenue collected from the ORF, in 
combination with other regulatory fees and fines, would help offset, 
but not exceed, the Exchange's total regulatory costs. As discussed, 
the Exchange has designed the ORF to generate revenues that would be 
less than or equal to 75% of the Exchange's regulatory costs, which is 
consistent with the practice across the options industry and the view 
of the Commission that regulatory fees be used for regulatory purposes 
and not to support the Exchange's business side. The Exchange 
determined to increase ORF after its semi-annual review of its 
regulatory costs and regulatory revenues, which includes revenues from 
ORF and other regulatory fees and fines. The Exchange notes that 
although recent options volumes have increased, it has not increased 
its ORF rate since it was adopted in 2015. In fact, the Exchange has 
been steadily decreasing the rate over the last several years.\9\ 
Accordingly, the Exchange believes it's reasonable to increase the ORF. 
Additionally, the proposed change is reasonable as it would offset the 
anticipated increased regulatory costs, while still not exceeding 75% 
of the Exchange's total regulatory costs. Moreover, the proposed amount 
is still significantly lower than the amount of ORF assessed on other 
exchanges \10\ and lower than the Exchange has assessed previously.\11\
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    \9\ See Securities Exchange Act Release No. 89471 (August 4, 
2020), 85 FR 49405 (August 13, 2020) (SR-CboeBZX-2020-057) and 
Securities Exchange Act Release No. 83879 (August 17, 2018), 83 FR 
42739 (August 23, 2018) (SR-CboeBZX-2018-063). See also Securities 
Exchange Act Release No. 82660 (February 8, 2018), 83 FR 6664 
(February 14, 2018) (SR-CboeBZX-2018-008), Securities Exchange Act 
Release No. 80050 (February 16, 2017), 82 FR 11491 (February 23, 
2017) (SR-CboeBZX-2017-013) and Securities Exchange Act Release No. 
74214 (February 5, 2015), 80 FR 7665 (February 11, 2011) (SR-BATS-
2015-08).
    \10\ See e.g., NYSE Arca Options Fees and Charges, Options 
Regulatory Fee (``ORF'') and NYSE American Options Fees Schedule, 
Section VII(A), which provide that ORF is assessed at a rate of 
$0.0055 per contract for each respective exchange. See also Nasdaq 
PHLX, Options 7 Pricing Schedule, Section 6(D), which provides for 
an ORF rate of $0.0034 per contract.
    \11\ See Securities Exchange Act Release No. 89471 (August 4, 
2020), 85 FR 49405 (August 13, 2020) (SR-CboeBZX-2020-005) and 
Securities Exchange Act Release No. 83879 (August 17, 2018), 83 FR 
42739 (August 23, 2018) (SR-CboeBZX-2018-063). See also Securities 
Exchange Act Release No. 82660 (February 8, 2018), 83 FR 6664 
(February 14, 2018) (SR-CboeBZX-2018-008), Securities Exchange Act 
Release No. 80050 (February 16, 2017), 82 FR 11491 (February 23, 
2017) (SR-CboeBZX-2017-013) and Securities Exchange Act Release No. 
74214 (February 5, 2015), 80 FR 7665 (February 11, 2011) (SR-BATS-
2015-08).
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    As noted above, the Exchange will also continue to monitor on at 
least a semi-annual basis the amount of revenue collected from the ORF, 
even as amended, to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. If the Exchange determines regulatory revenues would 
exceed its regulatory costs in a given year, the Exchange will reduce 
the ORF by submitting a fee change filing to the Commission.\12\
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    \12\ Consistent with Rule 15.2 (Regulatory Revenue), the 
Exchange notes that should excess ORF revenue be collected prior to 
any reduction in an ORF rate, such excess revenue will not be used 
for nonregulatory purposes.
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    The Exchange also believes the proposed fee change is equitable and 
not unfairly discriminatory in that it is charged to all Members on all 
their transactions that clear in the customer range at the OCC. The 
Exchange believes the ORF ensures fairness by

[[Page 65414]]

assessing higher fees to those Members that require more Exchange 
regulatory services based on the amount of customer options business 
they conduct. Regulating customer trading activity is much more labor 
intensive and requires greater expenditure of human and technical 
resources than regulating non-customer trading activity, which tends to 
be more automated and less labor-intensive. As a result, the costs 
associated with administering the customer component of the Exchange's 
overall regulatory program are materially higher than the costs 
associated with administering the non-customer component (e.g., Member 
proprietary transactions) of its regulatory program.\13\ Moreover, the 
Exchange notes that it has broad regulatory responsibilities with 
respect to its Members' activities, irrespective of where their 
transactions take place. Many of the Exchange's surveillance programs 
for customer trading activity may require the Exchange to look at 
activity across all markets, such as reviews related to position limit 
violations and manipulation. Indeed, the Exchange cannot effectively 
review for such conduct without looking at and evaluating activity 
regardless of where it transpires. In addition to its own surveillance 
programs, the Exchange also works with other SROs and exchanges on 
intermarket surveillance related issues. Through its participation in 
the Intermarket Surveillance Group (``ISG'') \14\ the Exchange shares 
information and coordinates inquiries and investigations with other 
exchanges designed to address potential intermarket manipulation and 
trading abuses. Accordingly, there is a strong nexus between the ORF 
and the Exchange's regulatory activities with respect to its Members' 
customer trading activity.
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    \13\ If the Exchange changes its method of funding regulation or 
if circumstances otherwise change in the future, the Exchange may 
decide to modify the ORF or assess a separate regulatory fee on 
Member proprietary transactions if the Exchange deems it advisable.
    \14\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by cooperatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. This proposal does not create 
an unnecessary or inappropriate intra-market burden on competition 
because the ORF applies to all customer activity, thereby raising 
regulatory revenue to offset regulatory expenses. It also supplements 
the regulatory revenue derived from non-customer activity. The Exchange 
notes, however, the proposed change is not designed to address any 
competitive issues. Indeed, this proposal does not create an 
unnecessary or inappropriate inter-market burden on competition because 
it is a regulatory fee that supports regulation in furtherance of the 
purposes of the Act. The Exchange is obligated to ensure that the 
amount of regulatory revenue collected from the ORF, in combination 
with its other regulatory fees and fines, does not exceed regulatory 
costs.

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

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

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \15\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \16\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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 shall institute proceedings under 
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-071 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-CboeBZX-2023-071. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeBZX-2023-071 and should 
be submitted on or before October 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20519 Filed 9-21-23; 8:45 am]
BILLING CODE 8011-01-P