Document ID: SEC-2018-0950-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe C2 Exchange, Inc.
Posted Date: 2018-06-21T04:00Z

[Federal Register Volume 83, Number 120 (Thursday, June 21, 2018)]
[Notices]
[Pages 28892-28894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13304]

[[Page 28892]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83455; File No. SR-C2-2018-014]

Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Physical Port Fees for C2

June 15, 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 June 4, 2018, Cboe C2 Exchange, Inc. (the ``Exchange'' or 
``C2'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated the proposed rule change as one establishing or changing 
a member due, fee, or other charge imposed by the Exchange under 
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 available at the Exchange's website at 
www.markets.cboe.com, at the principal office of the Exchange, 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 parts 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.\5\
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    \5\ The Exchange initially filed the proposed changes on June 1, 
2018 (SR-C2-2018-013). On June 4, 2018, the Exchange withdrew that 
filing and submitted this filing.
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Physical Connectivity
    A physical port is utilized by a Trading Permit Holder (``TPH'') or 
non-TPH to connect to the Exchange at the data centers where the 
Exchange's servers are located. The Exchange currently assesses fees 
for Network Access Ports for legacy physical connections to the 
Exchange. Specifically, TPHs and non-TPHs can currently elect to 
connect to C2's trading system via either a 1 gigabit per second 
(``Gbps'') Network Access Port or a 10 Gbps Network Access Port. The 
Exchange currently assesses a monthly fee of $500 per port for 1 Gbps 
Network Access Ports and a monthly fee of $1,000 per port for 10 Gbps 
Network Access Ports. Through June 30, 2018, C2 market participants 
will continue to have the ability to connect to C2's trading system via 
legacy Network Access Ports. The Exchange however, does not wish to 
assess fees for the legacy ports for the month of June. As such, the 
Exchange proposes to eliminate the $500 and $1,000 per port per month 
fees, effective June 1, 2018.
    On May 14, 2018, the Exchange migrated its technology onto the same 
trading platform as its affiliates Cboe BZX Exchange, Inc., Cboe BYX 
Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe BZX Exchange, Inc. 
(``Affiliated Exchanges'') (the ``migration''). In connection with the 
migration, effective May 14, 2018, TPHs and non-TPHs could 
alternatively elect to connect to C2 via new Physical Ports. The new 
Physical Ports allow TPHs and non-TPHs the ability to connect to the 
Exchange at the data centers where the Exchange's servers are located 
and TPHs and non-TPHs have the option to connect via 1 Gbps or 10 Gbps 
Physical Ports. The Exchange currently maintains a presence in two 
third-party data centers: (i) The primary data center where the 
Exchange's business is primarily conducted on a daily basis, and (ii) a 
secondary data center, which is predominantly maintained for business 
continuity purposes. The Exchange currently assesses a monthly fee of 
$2,000 per port for 1 Gbps Physical Ports, and a monthly fee of $7,000 
per port for 10 Gbps Physical Ports, for Physical Ports that connect to 
the primary data center. The Exchange proposes to increase the monthly 
Physical Port fees to $2,500 per port for 1 Gbps Physical Ports and to 
$7,500 per port for 10 Gbps Physical Ports. The Exchange notes the 
proposed fees enable it to continue to maintain and improve its market 
technology and services and also notes that the proposed fee changes 
are in line with the amounts assessed by other exchanges for similar 
connections. The Exchange also notes that the proposed changes to the 
Physical Port fees are also being proposed by its Affiliated Exchanges 
for June 1, 2018 effectiveness.
Disaster Recovery Physical Ports
    The Exchange also proposes to adopt separate Physical Port fees for 
connection to its secondary data center, which is predominantly 
maintained for business continuity purposes (``Disaster Recovery 
Systems''). Particularly, the Disaster Recovery Systems can be accessed 
via Physical Ports in Chicago. TPHs and Non-TPHs may maintain Physical 
Ports in order to be able to connect to the Disaster Recovery Systems 
in case of a disaster. The Exchange proposes to establish separate 
pricing for Physical Ports that are used to connect to the Disaster 
Recovery Systems (``Disaster Recovery Physical Ports''). Specifically, 
the Exchange proposes to assess a monthly fee of $2,000 per 1 Gbps 
Disaster Recovery Physical Port and a monthly fee of $6,000 per 10 Gbps 
Disaster Recovery Physical Port. This amount will allow the Exchange to 
maintain the Disaster Recovery Physical Ports in case they become 
necessary. The Exchange notes that the Disaster Recovery Physical Ports 
may also be used to access the Disaster Recovery Systems for the 
following affiliate exchanges: Cboe BZX Exchange, Inc., Cboe EDGX 
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe BYX Exchange, Inc., Cboe 
Exchange Inc., and Cboe Futures Exchange, LLC. The Exchange proposes to 
provide that market participants will only be assessed a single fee for 
any Disaster Recovery Physical Port that also accesses the Disaster 
Recovery Systems for these exchanges.
Logical Connectivity
    The Exchange currently assesses $650 per port for BOE and FIX 
Logical Ports. Additionally, the Fees Schedule provides that each BOE 
or FIX Logical Port incur the standard logical port fee when used to 
enter up to 20,000 orders per trading day per logical port as

[[Page 28893]]

measured on average in a single month and that each incremental usage 
of up to 20,000 per day per logical port will incur an additional 
logical port fee of $650 per month. The Exchange proposes to increase 
the number of average daily orders used to determine incremental usage 
from 20,000 orders per trading day per logical port to 70,000 orders 
per day per logical port. The Exchange believes that the pricing 
implications of going beyond 70,000 orders, instead of 20,000 orders, 
per trading day per Logical Port still encourage users to mitigate 
message traffic as necessary.
Cboe Data Services--Port Fees
    The Exchange lastly proposes to amend the ``Port Fee'' under the 
Cboe Data Services (``CDS'') fees section. Currently, the Port Fee is 
payable by any Customer that receives data through a direct connection 
to CDS (``direct connection'') or through a connection to CDS provided 
by an extranet service provider (``extranet connection''). The Port Fee 
applies to receipt of any C2 Options data feed but is only assessed 
once per data port. The Exchange proposes to amend the monthly CDS Port 
Fee to provide that it is payable ``per source'' used to receive data, 
instead of ``per data port''. The Exchange also proposes to increase 
the fee from $500 per data port/month to $1,000 per data source/month.
Clean-Up
    The Exchange lastly proposes to correct an inadvertent error with 
respect to a reference to a C2 Rule in the Fees Schedule. Particularly, 
the Exchange notes that under the Regulatory Options Fee section of the 
Fees Schedule, a reference to C2 Rule 6.36 is made. The Exchange notes 
that such rule was recently replaced with C2 Rule 6.15. The Exchange 
proposes to update that reference and notes that no substantive changes 
are being made by this clean-up update.
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 Permit Holders 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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Physical Connectivity
    The Exchange believes it's reasonable, equitable and not unfairly 
discriminatory to not assess Network Access Port fees for the month of 
June as market participants will no longer pay fees for these ports. 
TPHs and non-TPHs will continue to pay the Physical Port fees for 
Physical Port connections. The Exchange believes the proposed change is 
equitable and not unfairly discriminatory because it applies uniformly 
to market participants.
    The Exchange believes increasing the fees for the Physical Ports is 
reasonable because the proposed fees enable the Exchange to continue to 
maintain and improve its market technology. The Exchange also notes 
that the proposal represents an equitable allocation of reasonable 
dues, fees and other charges as its fees for physical connectivity are 
reasonably constrained by competitive alternatives. If a particular 
exchange charges excessive fees for connectivity, affected TPHs and 
non-TPHs may opt to terminate their connectivity arrangements with that 
exchange, and adopt a possible range of alternative strategies, 
including routing to the applicable exchange through another 
participant or market center or taking that exchange's data indirectly. 
Accordingly, if the Exchange charges excessive fees, it would stand to 
lose not only connectivity revenues but also revenues associated with 
the execution of orders routed to it, and, to the extent applicable, 
market data revenues. The Exchange believes that this competitive 
dynamic imposes powerful restraints on the ability of any exchange to 
charge unreasonable fees for connectivity. The Exchange also notes that 
the proposed amounts are in line with the costs of physical 
connectivity at other Exchanges.\9\ The Exchange believes the proposed 
Physical Port fees are equitable and not unfairly discriminatory 
because it applies to all market participants.
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    \9\ See e.g., NYSE Arca Equities Fees and Charges, NYSE Arca 
Marketplace: Other Fees and Charges, Connectivity Fees. See also, 
Nasdaq Phlx LLC Pricing Schedule, Section XI, Direct Connectivity to 
Phlx.
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    Similarly, the Exchange believes the proposed fees for the Disaster 
Recovery Physical Ports are reasonable as it will allow the Exchange to 
maintain the Disaster Recovery Physical Ports in case they become 
necessary. The Exchange also believes the proposed fees are reasonable 
as they remain competitive with those charged by other venues.\10\ The 
Exchange believes the proposed rule change is equitable and non-
discriminatory because it applies to all market participants equally.
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    \10\ See e.g., NYSE Arca Equities Fees and Charges, NYSE Arca 
Marketplace: Other Fees and Charges, Connectivity Fees. See also, 
Nasdaq Phlx LLC Pricing Schedule, Section XI, Direct Connectivity to 
Phlx.
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Logical Connectivity
    The Exchange believes the proposed increase to the maximum average 
orders per day per logical port for BOE and FIX Logical Port usage 
provides market participants adequate capacity and ability to submit 
orders, while still encouraging users to mitigate message traffic as 
necessary, which removes impediments to and perfects the mechanism of a 
free open market and a national market system, and, in general, 
protects investors and the public interest. The proposed change is also 
equitable and not unfairly discriminatory because it applies uniformly 
to all market participants.
Cboe Data Services--Port Fees
    The Exchange believes the proposed change is reasonable, equitable 
and not unfairly discriminatory because it applies uniformly to all 
market participants. The Exchange believes assessing the fee per data 
source, instead of per port, is reasonable because it may allow for 
market participants to maintain more ports at a lower cost and applies 
uniformly to all market participants. The Exchange believes the 
proposed increase is reasonable because, as noted above, market 
participants will likely still pay lower fees as a result of charging 
per data source and not per data port.
Miscellaneous Changes
    The Exchange believes the proposed rule change to correct an 
inadvertent rule reference error alleviates potential confusion. The 
alleviation of confusion removes impediments to and perfects the 
mechanism of a free and open market and a national market system.

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

[[Page 28894]]

proposed change represents a significant departure from pricing offered 
by the Exchange's affiliates. Additionally, TPHs may opt to disfavor 
the Exchange's pricing if they believe that alternatives offer them 
better value. Accordingly, the Exchange does not believe that the 
proposed change will impair the ability of TPHs or competing venues to 
maintain their competitive standing in the financial markets. The 
Exchange believes that fees for connectivity are constrained by the 
robust competition for order flow among exchanges and non-exchange 
markets. Further, excessive fees for connectivity, would serve to 
impair an exchange's ability to compete for order flow rather than 
burdening competition. The Exchange also does not believe the proposed 
rule change would impact intramarket competition as it would apply to 
all TPHs and non-TPHs equally.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written 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 \11\ and paragraph (f) of Rule 19b-4 \12\ 
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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-C2-2018-014 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-C2-2018-014. 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-C2-2018-014 and should be submitted on 
or before July 12, 2018.

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13304 Filed 6-20-18; 8:45 am]
 BILLING CODE 8011-01-P