Document ID: SEC-2019-1491-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-10-15T04:00Z

[Federal Register Volume 84, Number 199 (Tuesday, October 15, 2019)]
[Notices]
[Pages 55201-55203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22387]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87254; File No. SR-CBOE-2019-078]

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

October 8, 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 October 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
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe 
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX 
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges''). Cboe Options intends to migrate its trading platform to 
the same system used by the Cboe Affiliated Exchanges, which the 
Exchange expects to complete on October 7, 2019 (the ``migration''). 
The upcoming migration will also include a migration of the Exchange's 
billing system. Accordingly, in connection with the migration and in an 
effort to more closely align the Exchange's fees with the corresponding

[[Page 55202]]

fees at its Affiliated Exchanges, the Exchange proposes to amend its 
Marketing Fee Program, effective October 1, 2019.
    By way of background the Marketing Fee is assessed on certain 
transactions of Market-Makers resulting from customer orders. The funds 
collected via this Marketing Fee are then put into pools controlled by 
a ``Designed Primary Market Maker'' under Cboe Options Rule 8.80, a 
``Preferred Market-Maker'' under Cboe Options Rule 8.13 or a ``Lead 
Market-Maker'' under Cboe Options Rule 8.15 (collectively ``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 a 
number of amendments to its Marketing Fee program to simplify the 
program and harmonize the program with the program available at its 
affiliated exchange, EDGX Options.
    First, the Exchange proposes to eliminate the exclusion of 
transactions resulting from any of the strategies identified and/or 
defined in footnote 13 of this Fees Schedule from the Marketing Fee. 
Currently, in order for such transactions to be excluded, TPHs must 
submit a rebate request with supporting documentation within 3 business 
days of the transaction. The Exchange notes that post-migration, it 
will no longer support the intake of various rebate forms. Moreover, 
the Exchange has not received a request for such a rebate in over two 
years. As such, the Exchange believes the impact of the proposed change 
to be de minimis.
    The Exchange next proposes to eliminate the Rebate/Carryover 
Process set forth in Footnote 6 of the Fees Schedule. Currently, the 
Fees Schedule provides that if less than 80% of the marketing fee funds 
collected in a given month is paid out by the DPM or Preferenced 
Market-Maker in a given month, then the Exchange would refund such 
surplus at the end of the month on a pro rata basis based upon 
contributions made by the Market-Makers in that month. If 80% or more 
of the funds collected in a given month is paid out by the DPM or 
Preferenced Market-Maker, there will not be a rebate for that month 
unless the DPM or Preferenced Market-Maker elects to have funds 
rebated. In the absence of such election, any excess funds are included 
in an Excess Pool of funds to be used by the DPM or Preferenced Market-
Maker in subsequent months. The total balance of the Excess Pool of 
funds for a DPM or a Preferenced Market-Maker cannot exceed $100,000. 
If in any month the Excess Pool balance were to exceed $100,000, the 
funds in excess of $100,000 would be refunded on a pro rata basis based 
upon contributions made by the Market-Makers in that month. In 
addition, in any month, a DPM or a Preferenced Market-Maker can elect 
to have any funds in its Excess Pool refunded on a pro rata basis based 
upon contributions made by the Market-Makers in that month. In lieu of 
this process, the Exchange proposes to adopt the process that its 
affiliate EDGX Options utilizes. Particularly, the Exchange proposes to 
provide that the total balance of any undispersed marketing fees for a 
Preferenced Market-Maker/DPM pool cannot exceed $250,000.\3\ Each 
month, undisbursed marketing fees in excess of $250,000 will be 
reimbursed to the Market-Makers that contributed to the pool based upon 
a one month look back and their pro-rata portion of the entire amount 
of marketing fee collected during that month. The Exchange notes that 
in the past year, no Market-Maker has distributed less than 80% of the 
funds collected. Similarly, no Market-Maker has reached the $100,000 
Excess Pool cap. As such, the Exchange believes the proposed change to 
have a de minimis impact.
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    \3\ The Exchange notes that the undisbursed market fee cap of 
$250,000 would apply to a single pool. For example, any Marketing 
Fees generated from (1) orders for which a DPM was preferenced and 
(2) orders that were not preferenced, but in that DPM's class, would 
be deposited into the same single pool for that Market-Maker, which 
pool would have an overall cap of $250,000.
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    The Exchange lastly proposes to eliminate the administrative fee. 
Currently, the Exchange assesses an administrative fee of .45% on the 
total amount of the funds collected each month; provided, however, that 
no Market-Maker would contribute more than 15% of the total amount of 
funds raised by the .45% administrative. The Exchange no longer wishes 
to assess this fee and therefore proposes to eliminate it from the Fees 
Schedule. The Exchange notes it is not required to assess such fee and 
notes EDGX Options also does not assess such fee.
    While the Exchange has no way of predicting with certainty how the 
rule change will impact Trading Permit Holders, as noted above, the 
Exchange anticipates the impact of the proposed changes 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. Lastly, the proposed amendments 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'').\4\
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    \4\ See e.g., Cboe EDGX Options Exchange Fee Schedule, Marketing 
Fees.
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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 the proposed rule changes to the Marketing 
Fee program are reasonable as it further harmonizes the program to that 
of its affiliate, EDGX Options. The Exchange notes that the Marketing 
Fee amounts themselves are not changing with this proposed rule change. 
Rather, the proposed rule changes result in the simplification of the 
Marketing Fee program by eliminating an unused rebate process and 
rebate forms and provides for further harmonization of the program to 
that on EDGX Options by increasing the Excess Pool fee cap and 
eliminating the administrative fee. Additionally, the Exchange believes 
eliminating the administrative fee is reasonable because Market-Makers 
will no longer be subject to fee. As discussed above, the Exchange 
believes the proposed changes will not have a significant impact and 
will apply uniformly to all TPHs.

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

[[Page 55203]]

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 changes will be applied equally to all Market-
Makers.
    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 changes to the Marketing Fee program closely align the program 
to how its affiliate Cboe EDGX administers its respective marketing fee 
program. The Exchange also notes the proposed changes apply to all TPHs 
uniformly and are not expected to have a significant impact. The 
Exchange lastly notes that the proposed rule change is not intended as 
a competitive pricing change, but rather as a change to streamline and 
simplify its marketing fee program in connection with the upcoming 
migration.

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 \5\ and paragraph (f) of Rule 19b-4 \6\ 
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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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 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-2019-078 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-2019-078. 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-2019-078 and should be submitted on 
or before November 5, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-22387 Filed 10-11-19; 8:45 am]
BILLING CODE 8011-01-P