Document ID: SEC-2018-1330-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2018-08-23T04:00Z

[Federal Register Volume 83, Number 164 (Thursday, August 23, 2018)]
[Notices]
[Pages 42749-42751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18162]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83877; File No. SR-CBOE-2018-057]

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

August 17, 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 August 9, 2018, 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 relating to the 
Options Regulatory Fee.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to decrease the Options Regulatory Fee 
(``ORF'') from $0.0049 per contract to $0.0028 per contract in order to 
help ensure that revenue collected from the ORF, in combination with 
other regulatory fees and fines, meets the Exchange's total regulatory 
costs.\3\
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    \3\ The Exchange initially filed the proposed fee change on 
August 1, 2018 (SR-CBOE-2018-054) for August 1, 2018 effectiveness. 
On business date August 9, 2018, the Exchange withdrew that filing 
and submitted this filing.
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    The ORF is assessed by Cboe Options to each Trading Permit Holder 
(``TPH'') for options transactions cleared by the TPH that are cleared 
by the Options

[[Page 42750]]

Clearing Corporation (``OCC'') in the customer range, regardless of the 
exchange on which the transaction occurs.\4\ In other words, the 
Exchange imposes the ORF on all customer-range transactions cleared by 
a TPH, 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 
Trading Permit Holder (``CTPH'') or non-CTPH that ultimately clears the 
transaction. With respect to linkage transactions, Cboe Options 
reimburses its routing broker providing Routing Services pursuant to 
Cboe Options Rule 6.14B for options regulatory fees it incurs in 
connection with the Routing Services it provides.
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    \4\ The ORF also applies to customer-range transactions executed 
during Extended Trading Hours.
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    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 TPH customer options business. 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, information technology and 
accounting. These indirect expenses are estimated to be approximately 
10% of Cboe Options' total regulatory costs for 2018. Thus, direct 
expenses are estimated to be approximately 90% of total regulatory 
costs for 2018. In addition, it is Cboe 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 2018 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 also notes that its regulatory responsibilities with 
respect to TPH compliance with options sales practice rules have 
largely been allocated to FINRA under a 17d-2 agreement.\5\ The ORF is 
not designed to cover the cost of that options sales practice 
regulation.
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    \5\ See Securities Exchange Act Release No. 76309 (October 29, 
2015), 80 FR 68361 (November 4, 2015).
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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. 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, the Exchange will adjust the 
ORF by submitting a fee change filing to the Commission. The Exchange 
notifies TPHs of adjustments to the ORF via regulatory circular. The 
Exchange endeavors to provide TPHs with such notice at least 30 
calendar days prior to the effective date of the change.
    The Exchange lastly proposes a couple of minor clean up changes to 
the Fees Schedule. Particularly, the ORF is listed as being $0.0081 per 
contract through January 31, 2018 and $0.0049 per contract effective 
February 1, 2018. As these dates have passed and the ORF is now simply 
$0.0028 per contract, the Exchange proposes to delete the reference to 
the ORF being $0.0081 per contract through January 31, 2018 and the 
February 1, 2018 effective date of the $0.0049 per contract ORF.
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 TPHs 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, does not exceed the 
Exchange's total regulatory costs. Moreover, the Exchange believes the 
ORF ensures fairness by assessing higher fees to those TPHs 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., TPH proprietary transactions) of its regulatory 
program.\9\ The Exchange believes the proposed fee change is equitable 
and not unfairly discriminatory in that it is charged to all TPHs on 
all their transactions that clear in the customer range at the OCC.
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    \9\ 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 TPH 
proprietary transactions if the Exchange deems it advisable.
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    The Exchange believes the proposal to eliminate obsolete language 
with respect to past ORF rates maintains clarity in the rules and 
alleviates potential confusion, thereby protecting investors and the 
public interest.

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. 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.

[[Page 42751]]

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 \10\ and paragraph (f) of Rule 19b-4 \11\ 
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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 No. SR-CBOE-2018-057 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 No. SR-CBOE-2018-057. 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 No. SR-CBOE-2018-057, and should be submitted on 
or before September 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18162 Filed 8-22-18; 8:45 am]
BILLING CODE 8011-01-P