Document ID: SEC-2020-0438-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-03-25T04:00Z

[Federal Register Volume 85, Number 58 (Wednesday, March 25, 2020)]
[Notices]
[Pages 16978-16981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06190]

[[Page 16978]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88426; File No. SR-CBOE-2020-021]

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

March 19, 2020.
    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 March 17, 2020, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt new Footnote 12 of the Fees Schedule 
to govern pricing changes in the event the Exchange trading floor 
becomes inoperable.\3\ In the event the trading floor becomes 
inoperable, the Exchange will continue to operate in a screen-based 
only environment using a floorless configuration of the System that is 
operational while the trading floor facility is inoperable. The 
Exchange would operate using that configuration only until the 
Exchange's trading floor facility became operational. Open outcry 
trading would not be available in the event the trading floor becomes 
inoperable.
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    \3\ The Exchange originally submitted the proposed fee changes 
on March 16, 2020 (SR-CBOE-2020-020). On March 17, 2020, the 
Exchange withdrew that filing and submitted this filing.
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    The Exchange first proposes to provide that in the event the Cboe 
Options trading floor becomes inoperable, holders of a Market-Maker 
Floor Permit will be entitled to act as an electronic Market-Maker and 
holders of a Floor Broker Permit will be entitled to access the 
Exchange electronically to submit orders to the Exchange, at no further 
cost. Currently, in order to act as a Market-Maker electronically a 
Trading Permit Holder (``TPH'') must purchase a Market-Maker Electronic 
Access Permit. In order to access the Exchange electronically and 
submit orders to the Exchange, a TPH must purchase an ``Electronic 
Access Permit''. Conversely, TPHs that wish to act as a Market-Maker on 
the floor must purchase a Market-Maker Permit and TPHs that wish to act 
as a Floor Broker on the floor of the Exchange must purchase a Floor 
Broker Permit. The Exchange wishes to encourage floor-based market 
participants to participate on the Exchange electronically if the 
trading floor becomes inoperable. As such, the Exchange proposes to 
provide that holders of a Market-Maker Floor Permit and Floor Broker 
Permit are entitled to operate electronically in their registered 
capacity at no additional cost (i.e., not charge for an additional 
Market-Maker Electronic Access Permit or Electronic Access Permit).
    The Exchange next proposes to amend the Floor Broker ADV Discount. 
Under this discount program, Floor Broker Trading Permit fees are 
eligible for rebates based on the average customer (``C'') open-outcry 
contracts executed per day over the course of a calendar month in all 
underlying symbols. In light of the Exchange's recent announcement that 
it's trading floor would be considered inoperable starting March 16, 
2020, the Exchange proposes to provide that for the month of March 
2020, ADV will be based on March 1-March 13, 2020 volume.
    The Exchange next proposes to provide that in the event the trading 
floor becomes inoperable, the Exchange shall waive SPX and SPXW 
Execution Surcharges for SPX and SPXW volume executed via the Automated 
Improvement Mechanism (``AIM'') for the duration of time the Exchange 
operates in a screen-based only environment. The Exchange currently 
assesses a SPX Execution Surcharge of $0.21 per contract and a SPXW 
Execution Surcharge of $0.13 per contract for non-Market Maker orders 
in SPX and SPXW, respectively that are executed electronically (with 
some exceptions).\4\ The Execution Surcharges were adopted to ensure 
that there is reasonable cost equivalence between the primary execution 
channels for SPX and SPXW. More specifically, the Execution Surcharges 
minimize the cost differentials between manual and electronic 
executions, which is in the interest of the Exchange as it must both 
maintain robust electronic systems as well as provide for economic 
opportunity for floor brokers to continue to conduct business, as the 
Exchange believes they serve an important function in achieving price 
discovery and customer executions.\5\ In the event the trading floor 
becomes inoperable, the only execution available for SPX and SPXW would 
be electronic executions. The Exchange still wishes to encourage floor 
brokers to continue to conduct business on the Exchange, albeit 
electronically when the floor is inoperable. To that end, in order to 
approximate the trading floor environment electronically, the Exchange 
will make AIM available for SPX/SPXW in the event the trading floor 
becomes inoperable. Particularly, the Exchange notes that it can 
determine AIM eligibility on a class-by-class basis \6\ and 
historically SPX and SPXW have not been designated as eligible for AIM 
Auctions. As such, the Exchange does not wish to discourage floor 
brokers from executing SPX and SPXW volume via AIM when the trading 
floor is inoperable by assessing the Execution

[[Page 16979]]

Surcharges such volume. Indeed, in the absence of the trading floor 
being inoperable, AIM would not be available for SPX/SPX and such 
volume would otherwise execute on the floor and not be subject to the 
Execution Surcharges.
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    \4\ See Cboe Options Fees Schedule, Footnote 21.
    \5\ See e.g., Securities Exchange Act Release No. 71295 (January 
14, 2014) 79 FR 3443 (January 21, 2014) (SR-CBOE-2013-129).
    \6\ See Rule 5.37(a)(1) and 5.38(a)(1).
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    The Exchange next proposes to adopt an AIM Execution Surcharge for 
SPX, SPXW and VIX AIM Agency/Primary orders for all market participants 
which would apply only when the Exchange operates in a screen-based 
only environment and which would be invoiced to the executing TPH. 
Specifically, the Exchange proposes to adopt a $0.05 per contract fee 
for SPX and SPXW AIM Agency/Primary orders and a $0.04 per contract fee 
for VIX AIM Agency/Primary orders. The Exchange notes that currently, 
SPX, SPXW and VIX orders executed via open-outcry are assessed floor 
brokerage fees. Specifically, SPX/SPXW orders are assessed a floor 
brokerage fee of $0.04 per contract fee for non-crossed orders and a 
$0.02 per contract fee for crossed orders and VIX orders are assessed a 
floor brokerage fee of $0.03 per contract for non-crossed orders and 
$0.015 per contract for crossed orders. The Exchange notes that in the 
event the trading floor becomes inoperable, volume that would otherwise 
be executed on the floor would have to be executed electronically. The 
Exchange believes it's appropriate to continue to assess this volume, 
notwithstanding the fact that it is being moved to an electronic 
channel.
    The Exchange also proposes to provide that SPX/SPXW, VIX and RUT 
contracts executed via AIM during the time when the Exchange operates 
in a screen-based only environment will not count towards the 1,000 
contract thresholds for the electronic SPX/SPXW, VIX and RUT Tier 
Appointment Fee. Currently, the Exchange assesses separate monthly Tier 
Appointment Fees to electronic and floor Market-Maker holding a Market-
Maker Electronic Access Permit or Market-Maker Floor Permit, 
respectively, that trade SPX (including SPXW), VIX or RUT contracts at 
any time during the month. The Exchange proposes to exclude SPX/SPXW, 
VIX and RUT volume executed via AIM during the time when the Exchange 
operates in a screen-based only environment, as the Exchange does not 
wish to discourage the sending of such orders via AIM during that time. 
The Exchange notes that the electronic Tier Appointment fees are 
intended to be assessed to Market-Maker TPHs who act as Market-Makers 
electronically and engage in trading of these products (as opposed to 
those who normally execute volume via open outcry, but must participate 
electronically due to the trading floor being inoperable).
    The Exchange next proposes to provide that for purposes of the 
Market-Maker EAP Appointments Sliding Scale, the total quantity will be 
determined by the highest quantity used at any point during the month, 
excluding additional quantity added during the time the Exchange 
operates in a screen-based only environment. Currently, during Regular 
Trading Hours, a Market-Maker has an appointment to trade open outcry 
in all classes traded on the Exchange, at no charge.\7\ Electronic 
Market-Makers however, must select appointments and are charged for one 
or more ``Appointment Units'' (which are scaled from 1 ``unit'' to more 
than 5 ``units''), depending on which classes they elect appointments 
in.\8\ The Exchange does not wish to subject Market-Makers to increased 
fees as a result of selecting appointments to trade electronically in 
classes during a time when the Exchange operates in a screen-based only 
environment that they otherwise trade, at no charge, on the floor.
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    \7\ See Rule 5.50(e).
    \8\ Appointment weights for each appointed class are set forth 
in Cboe Options Rule 5.50(g) and are summed for each Market-Maker in 
order to determine the total appointment units, to which fees will 
be assessed.
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    Lastly, as noted above, SPX and SPXW have not historically been 
designated as eligible for AIM Auctions. The Exchange anticipates that 
it will designate SPX/SPXW as eligible for AIM Auctions in the event 
the trading floor becomes inoperable. The header relating to AIM in the 
Rate Table for Underlying Symbol List A Schedule however references 
only that AIM is available for (1) VIX and (2) SPX/SPXW during Global 
Trading Hours.\9\ As such, the Exchange proposes to clarify in proposed 
Footnote 12 of the Fees Schedule that AIM would be available for SPX/
SPXW during Regular Trading Hours, in the event the trading floor is 
inoperable.
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    \9\ See Cboe Options Fees Schedule, Rate Table--Underlying 
Symbol List 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 thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act. Specifically, the Exchange 
believes the proposed rule change is consistent with the 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. Additionally, the Exchange 
believes the proposed rule change is consistent with Section 6(b)(4) of 
the Act, 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.
    The Exchange believes the proposed rule change to allow holders of 
Floor Trading Permits to operate in their registered capacity 
electronically at no further cost is reasonable as such market 
participants would not be subject to additional costs in the event they 
can only participate electronically due to the trading floor being 
inoperable. Indeed, in such an event, the Exchange wishes to encourage 
floor-based market participants to continue to participate on the 
Exchange electronically. The Exchange believes the proposed rule change 
is equitable and not unfairly discriminatory as all such floor 
participants will be treated equally. The Exchange also believes it's 
proposal to base the ADV thresholds for the Floor Broker ADV Discount 
program on volume from March 1, through March 13, 2020 is reasonable as 
such discount is based on open-outcry volume only and the Exchange 
floor has been closed indefinitely as of March 16, 2020.
    The Exchange believes the proposed rule change to waive SPX and 
SPXW Execution Surcharges for AIM volume in the event the trading floor 
becomes inoperable is reasonable because market participants will not 
be subject to these extra surcharge for these executions. As noted 
above, the Execution Surcharges minimize the cost differentials between 
manual and electronic executions, which is in the interest of the 
Exchange as it must both maintain robust electronic systems as well as 
provide for economic opportunity for floor brokers to continue to 
conduct business, as the Exchange believes they serve an important 
function in achieving price discovery and customer executions. In the 
event the trading floor becomes inoperable, Exchange still wishes to 
incentivize floor brokers to conduct business on the Exchange, albeit 
electronically and as such does not wish to assess a surcharge on 
volume that was otherwise executed on floor and not

[[Page 16980]]

via AIM. As discussed above, the Exchange wishes to make AIM available 
for SPX/SPXW in the event the trading floor is inoperable in order to 
best approximate the trading floor in an electronic environment. 
Indeed, the Exchange believes waiving the Execution Surcharges for 
volume executed via AIM in the event the trading floor is inoperable 
will promote and encourage trading of these products notwithstanding 
the fact that manual executions are no longer available. Additionally, 
the Exchange does not wish to assess the Execution Surcharges on AIM 
volume as AIM provides price improvement opportunities for these 
orders, similar to the opportunities that are generally available to 
them on the trading floor, which protects customers seeking execution 
of these orders. The Exchange believes the proposed change is also 
equitable and not unfairly discriminatory as it applies uniformly to 
all similarly situated market participants, as all TPHs will be able to 
execute electronically via AIM and be subject to equivalent execution 
costs while the trading floor is inoperable.
    The Exchange believes the proposal to adopt an AIM Execution 
Surcharge for SPX/SPXW and VIX Agency/Primary orders is reasonable as 
the proposed rates are similar to the total rates charged for volume 
that is executed via open-outcry.\10\ The Exchange also notes that the 
Fees Schedule already provides for a similar scenario of such rates 
being assessed in the event the trading floor is inoperable. For 
example, Footnote 15 of the Fees Schedule provides that in the event 
the Exchange's exclusively listed options must be traded at a Back-up 
Exchange pursuant to Cboe Options Rule 5.26, the Back-up Exchange has 
agreed to apply the per contract and per contract side fees (i.e., the 
Floor Brokerage fees) to such transactions. Accordingly, the Exchange 
believes it's similarly appropriate to adopt and apply similar fees to 
transactions that must occur via an electronic execution channel 
(instead of on a Back-Up Exchange) due to the Exchange's trading floor 
being inoperable. The Exchange also notes that as discussed above, it 
is not otherwise assessing the SPX/SPXW Execution Surcharges on AIM 
SPX/SPXW orders. The Exchange believes the proposed change is also 
equitable and not unfairly discriminatory as it applies uniformly to 
all similarly situated market participants, as all TPHs will be able to 
execute electronically via AIM and be subject to equivalent execution 
costs while the trading floor is inoperable.
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    \10\ See Cboe Options Fees Schedule, Floor Brokerage Fees.
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    The Exchange believes its proposal to provide that SPX/SPXW, VIX 
and RUT contracts executed via AIM during a time when the Exchange 
operates in a screen-based only environment will not count towards the 
1,000 contract thresholds for the electronic SPX/SPXW, VIX and RUT Tier 
Appointment Fees is reasonable as Market-Makers that would otherwise 
meet the current contract thresholds due to the need to participate on 
the Exchange electronically will not be subject to an additional Tier 
Appointment Fee for volume executed via AIM. The Exchange believes the 
proposed change is reasonable as the Tier Appointment fees were 
intended to apply to TPHs who act as electronic Market-Makers in SPX/
SPX, VIX and RUT, not those that notwithstanding the trading floor 
being inoperable would act as floor Market-Makers and trade these 
products. The Exchange anticipates Market-Maker a large portion of 
volume for any Market-Maker that trades in SPX/SPXW, VIX and RUT only 
in open cry will be executed via AIM in the event the trading floor is 
inoperable. Accordingly, the Exchange does not wish to assess the Tier 
Appointment fees to Market-Makers who do not usually conduct 
significant electronic volume in these products and would not 
participate electronically if not for the trading floor being 
inoperable. Additionally, the Exchange does not wish to discourage the 
use of AIM for SPX/SPXW, VIX or RUT as AIM provides price improvement 
opportunities for these orders, similar to the opportunities that are 
generally available to them on the trading floor, which protects 
customers seeking execution of these orders. The proposed change is 
equitable and not unfairly discriminatory because it will apply 
uniformly to all similarly situated market participants, as it applies 
to all Market-Makers trading in these products.
    The Exchange believes the proposal to not count Appointment Units 
added during a time when the Exchange operates in a screen-based only 
environment toward the total quantity of Appointment Units for purposes 
of calculating the Market-Maker EAP Appointments Sliding Scale is 
reasonable, as Market-Makers should not be subject to additional 
charges resulting from any additional appointments selected during a 
time when the trading floor is inoperable. As discussed above, floor 
Market-Makers have an appointment to trade open outcry in all classes 
traded on the Exchange at no cost. The Exchange does not wish to 
subject Market-Makers to increased fees as a result of selecting 
appointments to trade classes electronically during a time when the 
trading floor is inoperable, particularly classes they would otherwise 
trade at no charge on the trading floor. The proposed change is 
equitable and not unfairly discriminatory because it will apply 
uniformly to all similarly situated market participants, as it will 
apply to all Market-Makers, while also ensuring that Market-Makers who 
generally operate on the trading floor will not be subject to 
additional costs due to the unavailability of the trading floor.
    Lastly, the Exchange believes its proposal to clarify in the fees 
schedule that AIM may be available for SPX/SPXW during Regular Trading 
Hours in the even the trading floor becomes inoperable will provide 
clarity in the Fees Schedule and alleviate 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.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes the 
proposed changes are not intended to address any competitive issue, but 
rather to address fee changes it believes are reasonable in the event 
the trading floor becomes inoperable, thereby only permitting 
electronic participation on the Exchange. 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 the proposed changes apply equally to all 
similarly situated market participants. The Exchange does not believe 
that the proposed rule changes will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the proposed changes only affect trading on 
the Exchange in limited circumstances.

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.

[[Page 16981]]

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 rule-comments@sec.gov. Please include 
File Number SR-CBOE-2020-021 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-2020-021. 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-2020-021 and should be submitted on 
or before April 15, 2020.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06190 Filed 3-24-20; 8:45 am]
BILLING CODE 8011-01-P