Document ID: SEC-2018-0152-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2018-01-26T05:00Z

[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3816-3819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01363]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82548; File No. SR-CBOE-2018-005]

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

January 19, 2018.
    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 January 12, 2017, 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

    The Exchange 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.

[[Page 3817]]

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 its Fees Schedule. Particularly, the 
Exchange proposes to amend Footnote 11 of its Fees Schedule, which 
governs the Clearing Trading Permit Holder Fee Cap, Proprietary 
Products Sliding Scale, Proprietary VIX Sliding Scale, and Supplemental 
VIX Total Firm Discount (collectively, ``Firm Incentive Programs'') 
which applies to (i) Clearing Trading Permit Holder proprietary orders 
(``F'' origin code), and (ii) orders of Non-Trading Permit Holder 
Affiliates (``Non-TPH Affiliates'') of a Clearing Trading Permit Holder 
(``Clearing TPH'') orders (``L'' origin code). Footnote 11 currently 
defines a ``Non-Trading Permit Holder Affiliate'' for this purpose as a 
100% wholly-owned affiliate or subsidiary of a Clearing TPH that is 
registered as a United States or foreign broker-dealer and that is not 
a Cboe Options Trading Permit Holder (``TPH''). It also provides that 
only proprietary orders of the Non-TPH Affiliate effected for purposes 
of hedging the proprietary over-the-counter trading of the Clearing TPH 
or its affiliates will be included in calculating the Firm Incentive 
Programs. Additionally, Footnote 11 provides that the Exchange will 
aggregate the fees and trading activity of separate Clearing TPHs for 
the purposes of the Firm Incentive Programs if there is at least 75% 
common ownership between the Clearing TPHs as reflected on each 
Clearing TPH's Form BD, Schedule A. Footnote 11 further states that 
each Clearing TPH is responsible for notifying the TPH Department of 
all of its affiliations so that fees and contracts of the Clearing TPH 
and its affiliates may be aggregated and each Clearing TPH is required 
to inform the Exchange immediately of any event that causes an entity 
to cease to be an affiliate. A Clearing TPH is also required to certify 
the affiliate status of any Non-TPH Affiliate whose trading activity it 
seeks to aggregate.
    The Exchange first proposes to modify which ``L'' orders may be 
included in calculating the Firm Incentive Programs. Particularly, the 
Exchange proposes to eliminate the requirement that to be included in 
calculating the Firm Incentive Programs, ``L'' orders must be 
proprietary orders of a Non-TPH Affiliate effected for purposes of 
hedging the proprietary over-the-counter trading of the Clearing TPH or 
its affiliates. In its place, the Exchange proposes to provide that all 
proprietary orders of a Non-TPH Affiliate may be included in the above-
mentioned calculations. The Exchange wishes to encourage Non-TPH 
Affiliates to send all of their proprietary orders to the Exchange, not 
just transactions that are effected for purposes of hedging over-the-
counter trading.
    Next, the Exchange proposes to clarify that in order to provide 
``L'' origin code rates to ``L'' origin code orders, the orders need to 
clear through an Exchange-registered OCC number. The Exchange notes 
that if an order marked with an ``L'' origin code uses a non-Exchange 
registered OCC clearing number, the orders would not be aggregated with 
any ``F'' orders, as the clearing number is not known to the Exchange's 
billing system. In order to avoid confusion, the Exchange proposes to 
make clear that only proprietary orders of a Non-TPH Affiliate that 
clears through a Cboe Options-registered OCC clearing number(s) will be 
included in calculating the Firm Incentive Programs. Similarly, the 
Exchange wishes to further clarify Footnote 16 and add a reference to 
``L'' origin codes to Footnote 16. Footnote 16 currently provides that 
Broker-Dealer transaction fees (i.e., fees assessed for orders with a 
``B'' origin code) will apply to certain orders with an ``F'' origin 
code if those orders are from OCC members that are not Cboe Options 
TPHs. As noted above, if an order uses a non-Exchange registered OCC 
clearing number, the clearing number is not known to the Exchange's 
billing system. This is true regardless of if the order came from an 
OCC member that is or is not a Cboe Options TPH. As such, the Exchange 
proposes to also clarify that ``F'' and ``L'' orders will be billed as 
``B'' orders if the orders are from OCC numbers that are not from Cboe 
Options TPHs or are not registered with the Exchange.
    The Exchange next proposes to eliminate the requirement that each 
Clearing TPH certify the affiliate status of any Non-TPH Affiliate 
who's trading activity it seeks to aggregate. The Exchange believes 
that it is incumbent on any TPH marking an order with any origin code 
to ensure that it is marking the order appropriately and meeting any 
stated criteria. Orders should only be marked with an ``L'' origin code 
if it meets the definition provided for in Footnote 11, which, as noted 
above, requires that the order be from a 100% wholly-owned affiliate or 
subsidiary of a Clearing TPH that is registered as a United States or 
foreign broker-dealer and that is not a Cboe Options TPH. Accordingly, 
the Exchange does not believe it's necessary for further certification 
and therefore does not believe this language is necessary to maintain 
in the Fees Schedule.
    Lastly, the Exchange proposes to (i) relocate to a new Footnote and 
(2) modify, the language currently in Footnote 11 requiring each 
Clearing TPH to notify the TPH Department of all of its affiliations 
and of any event that causes an entity to cease to be an affiliate. 
Particularly, the Exchange notes that the definition of an 
``affiliate'' as used in Footnote 11 (i.e., 75% common ownership 
between the firms as reflected on each firm's Form BD, Schedule A) is 
also referenced numerous times throughout the Fees Schedule. 
Particularly, there are a number of other occasions for which the 
Exchange may aggregate activity between affiliates.\3\ As such, the 
Exchange believes it would be more appropriate to relocate the notice 
requirement to its own footnote (proposed Footnote 39) and expand the 
scope of the notice requirement to apply to all TPHs (not just Clearing 
TPHs). Accordingly, the Fees Schedule will now provide that each TPH is 
responsible for notifying the Exchange of all its affiliates and is 
required to inform the Exchange immediately of any event that causes an 
entity to cease to be an affiliate, in a form and manner to be 
determined by the Exchange. As noted above, an ``affiliate'' is defined 
as having at least 75% common ownership between two entities as 
reflected on each entity's Form BD, Schedule A.
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    \3\ See e.g., Cboe Exchange, Inc. Fees Schedule, Footnote 10, 
which provides the Exchange will aggregate the trading activity of 
separate Liquidity Provider firms for purposes of the Liquidity 
Provider Sliding Scale if there is at least 75% common ownership 
between the firms as reflected on each firm's Form BD, Schedule A.
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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

[[Page 3818]]

thereunder applicable to the Exchange and, in particular, the 
requirements of Section 6(b) of the Act.\4\ Specifically, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \5\ 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,\6\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes allowing a Clearing TPH to aggregate its 
trading activity for purposes of the Firm Incentive Programs with its 
Non-TPH Affiliate(s) for all proprietary orders of the Non-TPH 
Affiliate(s) and not just those effected for purposes of hedging the 
proprietary over-the-counter trading of the Clearing TPH or its 
affiliates is equitable, reasonable and not unfairly discriminatory. 
Particularly, the Exchange notes that ``L'' orders will continue to get 
the benefit of ``L'' order rates (now just a wider universe of orders). 
The Exchange believes it's equitable and not unfairly discriminatory to 
expand the scope of allowable ``L'' orders, as it still requires Non-
TPH Affiliate(s) to be registered as a United States or foreign broker-
dealer and for there to be complete identity of common ownership 
between the Clearing TPH and Non-TPH Affiliate. The Exchange does not 
believe it's necessary to continue to require the Non-TPH Affiliate's 
orders be effected for purposes of hedging. The elimination of this 
requirement would encourage the sending of all Non-TPH Affiliate's 
proprietary orders, which thereby brings greater trading activity, 
volume and liquidity, benefitting all market participants.
    The Exchange next believes that clarifying Footnote 11 to state 
that only proprietary orders of a Non-TPH Affiliate (``L'' origin code) 
that clear through a Cboe Options-registered OCC clearing number(s) 
will be processed as an ``L'' order, maintains transparency in the Fees 
Schedule and reduces potential confusion. For the same reasons, the 
Exchange is further clarifying Footnote 16 to provide that both ``F'' 
and ``L'' orders will be processed as Broker-Dealer (origin code ``B'') 
orders if they are from an OCC number that does not belong to a Cboe 
Options TPH or is not registered with the Exchange. As noted above, 
orders marked with either an ``F'' or ``L'' origin code that clear 
through a non-Exchange registered OCC clearing number are not processed 
as such, as the clearing number is not known to the Exchange's billing 
system. The Exchange believes that explicitly clarifying this 
requirement in both Footnote 11 and Footnote 16 will reduce potential 
confusion. The alleviation of confusion removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system, and, in general, protects investors and the public interest.
    The Exchange next believes it's reasonable to eliminate the 
requirement that each Clearing TPH certify the affiliate status of any 
Non-TPH Affiliate who's trading activity it seeks to aggregate because 
the Exchange believes marking an order with an ``L'' origin code should 
serve as certification that the order meets the requirements described 
above. Therefore, the Exchange does not believe this current language 
is necessary to maintain in the Fees Schedule. Eliminating unnecessary 
language reduces potential confusion, thereby removing impediments to 
and perfecting the mechanism of a free and open market and a national 
market system, and, in general, protecting investors and the public 
interest.
    Lastly, the Exchange believes its proposal to (i) relocate the 
language requiring each Clearing TPH to notify the TPH Department of 
all of its affiliations and of any event that causes an entity to cease 
to be an affiliate from Footnote 11 to a new Footnote and (ii) modify 
the language to expand the scope of the language such that the notice 
requirement applies to the entire Fees Schedule, and all TPHs 
generally, promotes transparency in the Fees Schedule and reduces 
confusion. As noted above, the definition of an affiliate (i.e., 75% 
common ownership between the firms as reflected on each firm's Form BD, 
Schedule A) is referenced numerous times throughout the Fees Schedule 
and there are a number of other occasions for which the Exchange 
aggregates activity between such affiliates. As such, the Exchange 
believes it would be more appropriate for the language requiring notice 
of affiliations and termination of such relationships to be applicable 
to all TPHs and therefore be relocated to its own footnote which would 
apply to the entire Fees Schedule. Additionally, clarifying that such 
information shall be communicated to the Exchange in a form and manner 
to be determined by the Exchange allows the Exchange to provide a 
uniform and orderly manner in which to receive the information.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burdens 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 to the extent Non-TPH 
Affiliates receive beneficial pricing, the Exchange notes that Non-TPH 
Affiliate(s) are required to have complete identity of common ownership 
between itself and its affiliated Clearing TPH, and Clearing TPHs have 
clearing obligations that other market participants do not have. 
Moreover, the proposed changes are intended to encourage market 
participants to bring increased volume to the Exchange (which benefits 
all market participants). Additionally, the clarifying rule changes are 
not intended to address any competitive issues but rather to provide 
more clarity and transparency regarding Non-TPH Affiliates and 
affiliates. The Exchange does not believe that the proposed change will 
cause any unnecessary burden on intermarket competition because the 
proposed change only affects trading 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)

[[Page 3819]]

of the Act \7\ and paragraph (f) of Rule 19b-4 \8\ 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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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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-2018-005 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-2018-005. 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-2018-005 and should be submitted on 
or before February 16, 2018.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01363 Filed 1-25-18; 8:45 am]
 BILLING CODE 8011-01-P