Document ID: SEC-2020-0519-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-04-06T04:00Z

[Federal Register Volume 85, Number 66 (Monday, April 6, 2020)]
[Notices]
[Pages 19200-19203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07082]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88526; File No. SR-CBOE-2020-024]

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

March 31, 2020.
    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 March 23, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission (``SEC'' 
or ``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. 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 Footnote 12 of the Fees Schedule, 
which governs pricing changes in the event the Exchange trading floor 
becomes inoperable. In the event the trading floor becomes inoperable, 
the Exchange will continue to operate in a screen-based only 
environment using a floorless configuration of the System that is 
operational while the trading floor facility is inoperable. The 
Exchange would operate using that configuration only until the 
Exchange's trading floor facility became operational. Open outcry 
trading would not be available in the event the trading floor becomes 
inoperable. Particularly, the Exchange proposes to incorporate into 
Footnote 12, changes related to Related Future Cross (``RFC'') 
transactions.
    By way of background, the Exchange recently adopted Rule 
5.24(e)(1)(D), which provides that in the event the trading floor is 
inoperable, a Trading Permit Holder (``TPH'') may execute an RFC order, 
which is comprised of an SPX or VIX option combo order coupled with a 
contra-side order or orders totaling an equal number of option combo 
orders, which is identified to the Exchange as being part of an 
exchange of option contracts for related futures positions.\3\ 
Particularly, Rule 5.24(e)(1)(D) permits unexposed crosses of riskless 
packaged transactions (i.e., RFC transactions) which include SPX/SPXW 
or VIX option combos offset by futures contracts. The proposal to allow 
RFC transactions was adopted to replicate functionality that is 
otherwise available when the Exchange is operating with an open outcry 
environment. RFC transactions are intended to provide means for 
transferring risk from futures positions into related combo positions 
for purposes of reducing capital requirements on portfolios held at 
bank clearing firms.
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    \3\ See SR-CBOE-2020-023.
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    The Exchange first proposes to provide that in the event the 
trading floor becomes inoperable, the Exchange shall waive the SPX and 
SPXW Execution Surcharges for SPX and SPXW volume executed as an RFC 
order for the duration of time the Exchange operates in a screen-based 
only environment. The Exchange currently assesses a SPX Execution 
Surcharge of $0.21 per contract and a SPXW Execution Surcharge of $0.13 
per

[[Page 19201]]

contract for non-Market Maker orders in SPX and SPXW, respectively that 
are executed electronically (with some exceptions).\4\ The Execution 
Surcharges were adopted to ensure that there is reasonable cost 
equivalence between the primary execution channels for SPX and SPXW. 
More specifically, the Execution Surcharges minimize the cost 
differentials between manual and electronic executions, which is in the 
interest of the Exchange as it must both maintain robust electronic 
systems as well as provide for economic opportunity for floor brokers 
to continue to conduct business, as the Exchange believes they serve an 
important function in achieving price discovery and customer 
executions.\5\ In the event the trading floor becomes inoperable, the 
only execution available for SPX and SPXW would be electronic 
executions. The Exchange still wishes to encourage floor brokers to 
continue to conduct business on the Exchange, albeit electronically 
when the floor is inoperable. To that end, in order to approximate the 
trading floor environment electronically, the Exchange will allow TPHs 
to execute RFC orders electronically, as noted above. As such, the 
Exchange does not wish to discourage floor brokers from executing SPX 
and SPXW RFC transactions when the trading floor is inoperable by 
assessing the Execution Surcharges such volume. Indeed, in the absence 
of the trading floor being inoperable, RFC orders would otherwise 
execute on the floor \6\ and not be subject to the Execution 
Surcharges. The Exchange notes that AIM executions are similarly 
excluded from the Execution Surcharges as such functionality is 
similarly only made available for SPX in the event the trading floor is 
inoperable.\7\
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    \4\ See Cboe Options Fees Schedule, Footnote 21.
    \5\ See e.g., Securities Exchange Act Release No. 71295 (January 
14, 2014) 79 FR 3443 (January 21, 2014) (SR-CBOE-2013-129).
    \6\ If the trading floor is open, floor brokers may execute 
crosses of option combos (i.e., synthetic futures) on the trading 
floor on behalf of market participants who were exchanging futures 
contracts for related options positions. Market participants enter 
into these exchanges in or to swap related exposures. For instance, 
if a market participant has positions in VIX options but would 
prefer to hold a corresponding position in VIX futures (such as, for 
example, to reduce margin or risk related to the option positions), 
that market participant may swap its VIX options positions with 
another market participant's VIX futures positions that have 
corresponding risk exposure.
    \7\ See Cboe Options Fees Schedule, Footnote 12.
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    The Exchange next proposes to adopt an RFC Execution Surcharge for 
RFC initiating orders for all market participants which would apply 
only when the Exchange operates in a screen-based only environment and 
which would be invoiced to the executing TPH. Specifically, the 
Exchange proposes to adopt a $0.05 per contract fee for SPX and SPXW 
RFC initiating orders and a $0.04 per contract fee for VIX RFC 
initiating orders. The Exchange notes that currently, SPX, SPXW and VIX 
orders executed via open-outcry are assessed floor brokerage fees. 
Specifically, SPX/SPXW orders are assessed a floor brokerage fee of 
$0.04 per contract fee for non-crossed orders and a $0.02 per contract 
fee for crossed orders and VIX orders are assessed a floor brokerage 
fee of $0.03 per contract for non-crossed orders and $0.015 per 
contract for crossed orders. The Exchange notes that in the event the 
trading floor becomes inoperable, volume that would otherwise be 
executed on the floor would have to be executed electronically. The 
Exchange believes it's appropriate to continue to assess this volume a 
modest fee, notwithstanding the fact that it is being moved to an 
electronic channel. The Exchange notes the proposed fees are the same 
as applied to SPX/SPXW and VIX AIM Agency/Primary Orders (i.e., ``AIM 
Execution Surcharge''), which was adopted recently for similar reasons 
and is applied only in the event the trading floor is inoperable. The 
Exchange therefore proposes to amend the title to AIM Execution 
Surcharge to ``AIM and RFC Execution Surcharge Fee'' and modify 
Footnote 12 to clarify that this Surcharge will also apply to volume 
executed as an RFC transaction.
    The Exchange also proposes to provide that SPX/SPXW and VIX 
contracts executed as an RFC order during the time when the Exchange 
operates in a screen-based only environment will not count towards the 
1,000 contract thresholds for the electronic SPX/SPXW and VIX Tier 
Appointment Fees. Currently, the Exchange assesses separate monthly 
Tier Appointment Fees to electronic and floor Market-Maker holding a 
Market-Maker Electronic Access Permit or Market-Maker Floor Permit, 
respectively, that trade SPX (including SPXW) and VIX contracts at any 
time during the month. The Exchange proposes to exclude SPX/SPXW and 
VIX volume executed as an RFC order during the time when the Exchange 
operates in a screen-based only environment, as the Exchange does not 
wish to discourage the sending of such orders during that time. The 
Exchange notes that the electronic Tier Appointment fees are intended 
to be assessed to Market-Maker TPHs who act as Market-Makers 
electronically and engage in trading of these products (as opposed to 
those who normally execute volume via open outcry, but must participate 
electronically due to the trading floor being inoperable).
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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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,\10\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed rule change to waive SPX and 
SPXW Execution Surcharges for RFC orders in the event the trading floor 
becomes inoperable is reasonable because market participants will not 
be subject to these extra surcharge for these executions. As noted 
above, the Execution Surcharges minimize the cost differentials between 
manual and electronic executions, which is in the interest of the 
Exchange as it must both maintain robust electronic systems as well as 
provide for economic opportunity for floor brokers to continue to 
conduct business, as the Exchange believes they serve an important 
function in achieving price discovery and customer executions.\11\ In 
the event the trading floor becomes inoperable, the Exchange still 
wishes to incentivize floor brokers to conduct business on the 
Exchange, albeit electronically and as such does not wish to assess a 
surcharge on volume that was otherwise executed on floor and not

[[Page 19202]]

electronically as an RFC order. As discussed above, market participants 
may be able to execute RFC orders comprised of SPX or SPXW options 
electronically in the event the trading floor is inoperable in order to 
best approximate the trading floor in an electronic environment. 
Indeed, the Exchange believes waiving the Execution Surcharges for 
volume executed as an RFC order in the event the trading floor is 
inoperable will promote and encourage trading of these products 
notwithstanding the fact that manual executions are no longer 
available. Additionally, the Exchange does not wish to assess the 
Execution Surcharges on RFC transactions as such transactions are 
intended to replicate functionality that is otherwise available when 
the Exchange is operating with an open outcry environment and is 
further intended to provide means for transferring risk from futures 
positions into related combo positions for purposes of reducing capital 
requirements on portfolios held at bank clearing firms. The Exchange 
believes the proposed change is also equitable and not unfairly 
discriminatory as it applies uniformly to all similarly situated market 
participants that submit RFC orders who will be subject to equivalent 
execution costs while the trading floor is inoperable. Also, as noted 
above, the Exchange notes that AIM executions are similarly excluded 
from the Execution Surcharges as such functionality is similarly only 
made available in the event the trading floor is inoperable.
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    \11\ See Securities Exchange Act Release No. 71295 (January 14, 
2014) 79 FR 3443 (January 21, 2014) (SR-CBOE-2013-129).
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    The Exchange believes the proposal to adopt an RFC Execution 
Surcharge for SPX/SPXW and VIX RFC initiating orders is reasonable as 
the proposed rates are similar to the total rates charged for volume 
that is executed via open-outcry.\12\ The Exchange also notes that the 
Fees Schedule already provides for a similar scenario of such rates 
being assessed in the event the trading floor is inoperable. For 
example, Footnote 15 of the Fees Schedule provides that in the event 
the Exchange's exclusively listed options must be traded at a Back-up 
Exchange pursuant to Cboe Options Rule 5.26, the Back-up Exchange has 
agreed to apply the per contract and per contract side fees (i.e., the 
Floor Brokerage fees) to such transactions. Accordingly, the Exchange 
believes it's similarly appropriate to adopt and apply similar fees to 
transactions that must occur via an electronic execution channel 
(instead of on a Back-Up Exchange) due to the Exchange's trading floor 
being inoperable. The Exchange also notes that as discussed above, it 
is not otherwise assessing the SPX/SPXW Execution Surcharges on RFC 
SPX/SPXW orders. The Exchange believes the proposed change is also 
equitable and not unfairly discriminatory as it applies uniformly to 
all similarly situated market participants that submit RFC orders who 
will be subject to equivalent execution costs while the trading floor 
is inoperable. Additionally, the Exchange notes the RFC Execution 
Surcharge is the same as the AIM Execution Surcharge, which was 
recently adopted for similar reasons for when the trading floor is 
inoperable.\13\
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    \12\ See Cboe Options Fees Schedule, Floor Brokerage Fees.
    \13\ See SR-CBOE-2020-021.
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    The Exchange believes its proposal to provide that SPX/SPXW and VIX 
contracts executed as an RFC order during a time when the Exchange 
operates in a screen-based only environment will not count towards the 
1,000 contract thresholds for the electronic SPX/SPXW and VIX Tier 
Appointment Fees is reasonable as Market-Makers that would otherwise 
meet the current contract thresholds due to the need to participate on 
the Exchange electronically will not be subject to an additional Tier 
Appointment Fee for volume executed as an RFC order. The Exchange 
believes the proposed change is reasonable as the Tier Appointment fees 
were intended to apply to TPHs who act as electronic Market-Makers in 
SPX/SPX and VIX, not those that, notwithstanding the trading floor 
being inoperable, would act as floor Market-Makers and trade these 
products. Accordingly, the Exchange does not wish to assess the Tier 
Appointment fees to Market-Makers who do not usually conduct 
significant electronic volume in these products and would not 
participate electronically if not for the trading floor being 
inoperable. Additionally, the Exchange does not wish to discourage the 
use of RFC orders for SPX/SPXW and VIX as RFC transactions would 
provide Market-Makers with needed relief from the effect of the current 
exposure method (``CEM'') on the options market. The proposed change is 
equitable and not unfairly discriminatory because it will apply 
uniformly to all similarly situated market participants, as it applies 
to all Market-Makers trading in these products. The Exchange notes such 
exclusion is similar to the exclusion of SPX/SPXW and VIX volume 
executed via AIM.\14\
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    \14\ See Cboe Options Fees Schedule, Footnote 12.
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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 notes the 
proposed changes are not intended to address any competitive issue, but 
rather to address fee changes it believes are reasonable in the event 
the trading floor becomes inoperable, thereby only permitting 
electronic participation on the Exchange. 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 changes apply equally to all 
similarly situated market participants. 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 the proposed changes only affect trading on 
the Exchange in limited circumstances.

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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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.

[[Page 19203]]

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-2020-024 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-2020-024. 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 offices 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-2020-024, and should be submitted 
on or before April 27, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07082 Filed 4-3-20; 8:45 am]
 BILLING CODE 8011-01-P