Document ID: SEC-2019-1151-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-08-13T04:00Z

[Federal Register Volume 84, Number 156 (Tuesday, August 13, 2019)]
[Notices]
[Pages 40114-40117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17233]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86588; File No. SR-CBOE-2019-039]

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

August 7, 2019.
    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 1, 2019, 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

    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 its fees schedule to (i) amend the 
Cboe Options Clearing Trading Permit Holder Proprietary Products 
Sliding Scales Program (Proprietary Product Sliding Scales'') and (ii) 
amend the Marketing Fee program, effective August 1, 2019.
Proprietary Sliding Scales
    The Proprietary Products Sliding Scales table provides that 
Clearing Trading Permit Holder Proprietary transaction fees for 
Clearing Trading Permit Holders (origin code ``F'') and for Non-
Clearing Trading Permit Holder Affiliates (``Non-TPH Affiliates'') 
(origin code ``L'') (collectively, Clearing TPHs'') in Underlying 
Symbol List A \3\ will be reduced provided a Clearing TPH reaches 
certain average daily volume (``ADV'') thresholds identified in Table A 
(the ``Firm Sliding Scale'') and Table B (the ``VIX Sliding Scale''). 
More specifically, Table A, the Firm Sliding Scale, provides for 
reduced Clearing TPH transaction fees in Underlying Symbol List A 
options, provided a Clearing TPH reaches certain ADV thresholds in all 
underlying symbols excluding Underlying Symbol List A on the Exchange 
in a month. Table B, the VIX Sliding Scale, provides for reduced 
Clearing TPH transaction fees in VIX, provided a Clearing TPH reaches 
certain VIX options volume thresholds during a month. For each Clearing 
TPH, the Exchange assesses the better of (a) the Firm Sliding Scale as 
applied to all Underlying Symbol List A products or (b) the Firm 
Sliding Scale as applied to all Underlying Symbol List A except

[[Page 40115]]

VIX, plus the discounted transaction fees as calculated under the VIX 
Sliding Scale. More specifically, for calculating a Clearing TPH's 
total proprietary product transaction fees, the Exchange currently uses 
the following methodology: If using the VIX Sliding Scale plus the Firm 
Sliding Scale (minus VIX options volume) results in lower total 
Clearing TPH proprietary transaction fees than just using the Firm 
Sliding Scale, the Exchange will apply the VIX Sliding Scale plus the 
Firm Sliding Scale (deducting the VIX options volume from the Firm 
Sliding Scale). If using the VIX Sliding Scale plus the Firm Sliding 
Scale (minus VIX options volume) results in higher total Clearing TPH 
proprietary transaction fees than just using the Firm Sliding Scale, 
the Exchange will apply only the Firm Sliding Scale.
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    \3\ See Cboe Options Footnote 34. Underlying Symbol List A 
currently includes OEX, XEO, RUT, RLG, RLV, RUI, AWDE, FTEM, FXTM, 
UKXM, SPX (includes SPXw), VIX, VOLATILITY INDEXES and binary 
options.
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    In order to simplify and streamline the Proprietary Sliding Scales 
program, the Exchange proposes to make the Firm Sliding Scale and VIX 
Sliding Scales separate and independent programs. That is, the Exchange 
proposes to no longer assess the lesser amount of the transaction fees 
calculated using only the Firm Sliding Scale as applied to all 
Underlying Symbol List A products or (b) the Firm Sliding Scale as 
applied to all Underlying Symbol List A except VIX, plus the discounted 
transaction fees as calculated under the VIX Sliding Scale. Rather, all 
Underlying Symbol List A options, excluding VIX, will be subject to the 
``Cboe Options Clearing Trading Permit Holder Proprietary Products 
Sliding Scale'' (formerly Table A) and all VIX volume will always be 
subject to the ``Cboe Options Clearing Trading Permit Holder VIX 
Sliding Scale'' (formerly Table B). The current methodology was 
originally adopted to provide a Clearing TPH with the most beneficial 
fee arrangement (the lowest fees) without double-counting VIX options 
volume. The Exchange notes however, the more beneficial fee arrangement 
for Clearing TPHs has historically and consistently been to apply the 
rates under the Firm Sliding Scale to all Underlying Symbol List A 
products excluding VIX and apply the rates under the VIX Sliding Scale 
to all VIX volume (which provides for the same end result as is being 
proposed by separating the program). For example, this result has been 
true for all Clearing TPHs to date this year 2019. As such, the 
Exchange believes the proposal to separate the sliding scale programs 
does not significantly or substantively impact Clearing TPHs.
Marketing Fee Program
    The Exchange next proposes to amend its Marketing Fee program. By 
way of background the Marketing Fee is assessed on certain transactions 
of Market-Makers resulting from (i) customer orders from payment 
accepting firms, or (ii) customer orders that have designated a DPM 
under Cboe Options Rule 8.80, a ``Preferred Market[hyphen]Maker'' under 
Cboe Options Rule 8.13 or a ``Lead Market-Maker'' under Cboe Options 
Rule 8.15 (collectively ``Preferenced Market[hyphen]Maker''). The funds 
collected via this Marketing Fee are then put into pools controlled by 
the Preferenced Market-Maker. The Preferenced Market-Maker controlling 
a certain pool of funds can then determine the order flow provider(s) 
to which the funds should be directed in order to encourage such order 
flow provider(s) to send orders to the Exchange.
    The Exchange proposes to simplify and amend the Marketing Fee 
program to provide that the Marketing Fee will be assessed on all 
transactions of Market-Makers resulting from any Customer order 
(instead of only Customer orders from (i) payment accepting firms or 
(ii) that have designated a Preferenced Market-Maker). The Exchange 
notes that currently, order flow providers are given the option of 
``opting in'' to the Marketing Fee Program to be eligible to receive 
marketing fees (i.e., become a payment accepting firm).\4\ The Exchange 
notes that over time however, the vast majority of firms have become 
payment accepting firms and there are only a handful of order flow 
providers that are not payment accepting firms. The Exchange also notes 
that currently the vast majority of customer orders designate a 
Preferenced Market-Maker. Accordingly, the vast majority of Market-
Maker orders that result from a Customer order are already subject to 
the Marketing Fee. While the Exchange has no way of predicting with 
certainty how the rule change will impact Trading Permit Holders, the 
Exchange anticipates the impact of the proposed change to be de minimis 
for all TPHs. Moreover, the Exchange believes the proposed change will 
also provide for more streamlined administration of the Marketing Fee 
program and uniform application of the Marketing Fee. Lastly, the 
proposed amendment to the Marketing Fee program will further harmonize 
the program with the corresponding Marketing Fee program of its 
affiliate exchange, Cboe EDGX Exchange, Inc., (``Cboe EDGX'') and is 
also in line with how other exchanges apply their respective marketing 
fee programs (i.e., marketing fees apply to all Market-Maker 
transactions resulting from any Customer order).\5\
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    \4\ The Exchange has had no role with respect to the 
negotiations between Preferenced Market-Makers and payment accepting 
firms. Rather, the Exchange merely collects and administers the 
payment of the fee collected on those transactions for which the 
Preferenced Market-Maker has advised the Exchange that it has 
negotiated with a payment accepting firm to pay for the firm's order 
flow.
    \5\ See e.g., Cboe EDGX Options Exchange Fee Schedule, Marketing 
Fees, which provides the marketing fees are charged to all Market 
Makers who are counterparties to a trade with a Customer. See also 
Nasdaq ISE, Options 7 Pricing Schedule, Section 6(E), Marketing Fee 
and NYSE American Options Fee Schedule, Section IA, Options 
Transaction Fees and Credits, Marketing Charges Per Contract for 
Electronic Transactions.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act, in general, and furthers 
the objectives of Section 6(b)(4), in particular, as it is designed to 
provide for the equitable allocation of reasonable dues, fees and other 
charges among its Members and issuers and other persons using its 
facilities. The Exchange also believes that the proposed rule change is 
consistent with the objectives of Section 6(b)(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, and, particularly, is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
    The Exchange believes that it is reasonable and equitable to 
separate the Proprietary Sliding Scales Program (i.e., Table A, Firm 
Sliding Scale and Table B, VIX Sliding Scale), because Clearing TPHs 
are still eligible to receive discounted transaction fees for their 
Underlying Symbol List A volume. Additionally, as discussed above, 
under the current ``best of'' calculation, the most beneficial fee 
arrangement (the lowest fees) for Clearing TPHs has consistently and 
historically been to apply the rates under the Firm Sliding Scale on 
all Underlying Symbol List A products excluding VIX and apply the rates 
under the VIX Sliding Scale on all

[[Page 40116]]

VIX volume, which is exactly how the programs will function separately 
as proposed. As such, the Exchange believes the proposal to separate 
the sliding scale programs does not significantly or substantively 
affect Clearing TPHs. Moreover, the proposed rule change streamlines 
and simplifies the Proprietary Sliding Scales program.
    The Exchange also believes that notwithstanding the proposed rule 
change, the Firm Sliding Scale and VIX Sliding Scale will continue to 
incentivize option volume. Additionally, the Exchange notes that lower 
fees for executing more contracts is equitable and not unfairly 
discriminatory because it provides market participants with an 
incentive to execute more contracts on the Exchange. This brings 
greater liquidity and trading opportunity, which benefits all market 
participants. The Exchange believes that the proposed change is not 
unfairly discriminatory because it will apply to all Clearing TPHs 
uniformly. The Exchange also believes offering lower fees under the 
Proprietary Sliding Scale to Clearing TPHs and not other market 
participants is equitable and not unfairly discriminatory because 
Clearing TPHs must take on certain obligations and responsibilities, 
such as clearing and membership with the Options Clearing Corporation, 
as well as significant regulatory burdens and financial obligations, 
that other market participants are not required to undertake.
    The Exchange believes the proposed rule change to apply the 
Marketing Fee to all Market-Maker transactions that result from 
Customer orders (instead of Customer orders that are from payment 
accepting firms or designate a Preferenced Market-Maker) is reasonable 
because the Marketing Fee amount is not changing. Rather, the proposed 
rule change results in the Marketing Fee being applied uniformly on all 
Market-Maker transactions where the counterparty is a Customer. As 
discussed above, the Exchange believes the proposed change will not 
have a significant impact, as the vast majority of Market-Maker-to-
Customer transactions are already subject to the Marketing Fee as (i) 
only a few order flow providers are not already payment accepting firms 
and (ii) the majority of orders designate a Preferenced Market-Maker. 
The Exchange also note that the Marketing Fee program is designed to 
attract additional order flow to the Exchange, which would increase 
liquidity and benefit all market participants. Lastly, the proposed 
rule change enables a more streamlined administration of the Marketing 
Fee program and is in line with how other exchanges, including the 
Exchange's affiliate, administer their respective Marking Fee 
programs.\6\
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    \6\ See e.g., Cboe EDGX Options Exchange Fee Schedule, Marketing 
Fees, which provides the marketing fees are charged to all Market 
Makers who are counterparties to a trade with a Customer. See also 
Nasdaq ISE, Options 7 Pricing Schedule, Section 6(E), Marketing Fee 
and NYSE American Options Fee Schedule, Section IA, Options 
Transaction Fees and Credits, Marketing Charges Per Contract for 
Electronic Transactions.
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the Exchange 
does not believe that the proposed change will impose any burden on 
intramarket competitions that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed change to 
the Proprietary Sliding Scales program and Marketing Fee Program, will 
be applied equally to Clearing TPHs and Market-Makers, respectively.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed change relating to the Proprietary Sliding Scales program only 
affects Exchange proprietary products, which are traded exclusively on 
the Exchange. Additionally, the proposed change to the Marketing Fee 
program, mirrors how other exchanges, including Cboe EDGX, apply their 
respective marketing fees. The Exchange notes that neither proposed 
rule change it intended as a competitive pricing change, but rather as 
a change to streamline and simplify both programs.

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 \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 rule-comments@sec.gov. Please 
include File Number SR-CBOE-2019-039 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-2019-039. 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions

[[Page 40117]]

should refer to File Number SR-CBOE-2019-039 and should be submitted on 
or before September 3, 2019.
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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\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17233 Filed 8-12-19; 8:45 am]
 BILLING CODE 8011-01-P