Document ID: SEC-2023-1142-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2023-10-04T04:00Z

[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68801-68803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22037]

[[Page 68801]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98661; File No. SR-CboeBZX-2023-074]

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

September 29, 2023.
    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 September 28, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' 
or ``BZX'') filed with the Securities and Exchange Commission (the 
``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 Options'') 
proposes to amend its Fees Schedule relating 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 amend the Fee Schedule to revise the ORF 
charged solely for the dates of September 28 and 29, 2023.
Background
    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, 
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.\3\ Based on the 
Exchange's most recent semi-annual review, the Exchange proposed to 
increase the amount of ORF that is collected by the Exchange from 
$0.0001 per contract side to $0.0003 per contract side, effective 
September 1, 2023.\4\ The increase was 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 then-current rate, would result in projected revenue that 
was 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 then-current 
rate results was 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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    \3\ 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.
    \4\ See Securities Exchange Act Release No. 98420 (September 18, 
2023), 88 FR 65412 (September 22, 2023) (SR-CboeBZX-2023-071).
    \5\ The Exchange notes that in connection with September 1 ORF 
rate change, it provided 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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OIP and Current Proposal
    As noted above, on September 1, 2023 the Exchange filed to increase 
ORF to $0.0003 (from $0.0001) per contract side (the ``Original ORF 
Filing''). However, on September 28, 2023, the Commission issued the 
Suspension of and Order Instituting Proceedings to Determine whether to 
Approve or Disapprove a

[[Page 68802]]

Proposed Rule Change to Modify the Options Regulatory Fee (``the 
``OIP'').\6\ As a result of the OIP, on September 28, 2023, the ORF 
reverted back to the rate in place prior to September 1, 2023 (i.e., 
$0.0001 per contract side).
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    \6\ See Securities Exchange Act Release No. 98597 (September 28, 
2023) (SR-CboeBZX-2023-071).
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    To ensure consistency of ORF assessments for the full month of 
September 2023, the Exchange proposes to modify the Fee Schedule to 
specify that the amount of ORF that will be collected by the Exchange 
through September 29, 2023 (i.e., the last trading day of the month of 
September), will be $0.0003 per contract side (the ``September ORF 
Rate'') and that effective October 2, 2023, the ORF will be $0.0001 per 
contract side.\7\ The Exchange believes that revenue generated from the 
ORF, including based on the September ORF Rate, will continue to cover 
a material portion, but not all, of the Exchange's regulatory costs.
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    \7\ This proposal is not intended to be responsive to any issues 
that may be raised in the OIP, but to instead address the immediate 
issue of billing for September 28 and 29th.
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    As noted above, the Exchange endeavors to notify Members of any 
change in the amount of the fee at least 30 calendar days prior to the 
effective date of the change via Exchange Notice; however, the Exchange 
notes that as a result of the OIP, such notice in this instance could 
not be given 30 days in advance.
    For avoidance of doubt, the Exchange notes that the September ORF 
Rate applies only through September 29, 2023 and that the ORF, 
effective October 2, 2023, will be assessed at a rate of $0.0001 per 
contract (i.e., the rate in place prior to the Original ORF Filing).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \8\ of the Act, in general, and 
Section 6(b)(4) and (5) \9\ of the Act, in particular, in that it is 
designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members and other persons using its 
facilities and does not unfairly discriminate between customers, 
issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange believes the proposed September ORF Rate is reasonable 
because it would help maintain fair and orderly markets and benefit 
investors and the public interest because it would ensure transparency 
and consistency of ORF for the entire month of September 2023. 
Specifically, the proposal would ensure that the amount of ORF 
collected by the Exchange for the trading days of September 28 and 29, 
2023 will be the same rate collected on every other trading day in 
September (i.e., $0.0003 per contract side). The Exchange believes this 
will avoid disruption to its Members that are subject to the ORF. As 
noted above, the Exchange may only use regulatory funds such as ORF 
``to fund the legal, regulatory, and surveillance operations'' of the 
Exchange.
The Proposal Is an Equitable Allocation of Fees
    The Exchange believes its proposal is an equitable allocation of 
fees among its market participants. The Exchange believes that the 
proposed September ORF Rate would not place certain market participants 
at an unfair disadvantage because all options transactions must clear 
via a clearing firm. Such clearing firms can then choose to pass 
through all, a portion, or none of the cost of the ORF to its 
customers, i.e., the entering firms. Because the ORF is collected from 
Member clearing firms by the OCC on behalf of the Exchange, the 
Exchange believes that using options transactions in the Customer range 
serves as a proxy for how to apportion regulatory costs among such 
Members. In addition, the Exchange notes that the regulatory costs 
relating to monitoring Members with respect to Customer trading 
activity are generally higher than the regulatory costs associated with 
Members that do not engage in Customer trading activity, which tends to 
be more automated and less labor-intensive. By contrast, regulating 
Members that engage in Customer trading activity is generally more 
labor intensive and requires a greater expenditure of human and 
technical resources as the Exchange needs to review not only the 
trading activity on behalf of Customers, but also the Member's 
relationship with its Customers via more labor-intensive exam-based 
programs. 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. Thus, the Exchange believes the September ORF Rate 
(like the rate assessed for every other trading day in September 2023) 
would be equitably allocated in that it is charged to all Members on 
all their transactions that clear in the Customer range at the OCC.
The Proposed Fee Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. The Exchange believes that the proposed September ORF 
Rate would not place certain market participants at an unfair 
disadvantage because all options transactions must clear via a clearing 
firm. Such clearing firms can then choose to pass through all, a 
portion, or none of the cost of the ORF to its customers, i.e., the 
entering firms. Because the ORF is collected from Member clearing firms 
by the OCC on behalf of the Exchange, the Exchange believes that using 
options transactions in the Customer range serves as a proxy for how to 
apportion regulatory costs among such Members. In addition, the 
Exchange notes that the regulatory costs relating to monitoring Member 
with respect to Customer trading activity are generally higher than the 
regulatory costs associated with Members that do not engage in Customer 
trading activity, which tends to be more automated and less labor-
intensive. By contrast, regulating Members that engage in Customer 
trading activity is generally more labor intensive and requires a 
greater expenditure of human and technical resources as the Exchange 
needs to review not only the trading activity on behalf of Customers, 
but also the Member's relationship with its Customers via more labor-
intensive exam-based programs. 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. Thus, the Exchange believes 
the September ORF Rate (like the rate assessed for every other trading 
day in September 2023), is not unfairly discriminatory because it is 
charged to all Members on all their transactions that clear in the 
Customer range at the OCC.

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. 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.
    Intramarket Competition. The Exchange believes the proposed fee

[[Page 68803]]

change would not impose an undue burden on competition as it is charged 
to all Members on all their transactions that clear in the Customer 
range at the OCC; thus, the amount of ORF imposed is based on the 
amount of Customer volume transacted. The Exchange believes that the 
proposed ORF would not place certain market participants at an unfair 
disadvantage because all options transactions must clear via a clearing 
firm. Such clearing firms can then choose to pass through all, a 
portion, or none of the cost of the ORF to its customers, i.e., the 
entering firms. In addition, because the ORF is collected from Member 
clearing firms by the OCC on behalf of the Exchange, the Exchange 
believes that using options transactions in the Customer range serves 
as a proxy for how to apportion regulatory costs among such Members.
    Intermarket Competition. The proposed fee change is not designed to 
address any competitive issues. Rather, the proposed change is designed 
to help the Exchange adequately fund its regulatory activities while 
seeking to ensure that total regulatory revenues do not exceed total 
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) \10\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \11\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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) \12\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \12\ 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-2023-074 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-2023-074. 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-2023-074 and should 
be submitted on or before October 25, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22037 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P