Document ID: SEC-2020-2034-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-12-21T05:00Z

[Federal Register Volume 85, Number 245 (Monday, December 21, 2020)]
[Notices]
[Pages 83115-83118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28009]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90676; File No. SR-CBOE-2020-114]

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

December 15, 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 December 1, 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 
and II 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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[[Page 83116]]

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 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 certain routing fees in connection 
with routed Customer orders in ETF and equity options, effective 
December 1, 2020.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily direct order flow to competing 
venues if they deem fee levels at a particular venue to be excessive or 
incentives to be insufficient. More specifically, the Exchange is only 
one of 16 options venues to which market participants may direct their 
order flow. Based on publicly available information, no single options 
exchange has more than 16% of the market share.\3\ Thus, in such a low-
concentrated and highly competitive market, no single options exchange 
possesses significant pricing power in the execution of option order 
flow. The Exchange believes that the ever-shifting market share among 
the exchanges from month to month demonstrates that market participants 
can shift order flow or discontinue to reduce use of certain categories 
of products in response to fee changes. Accordingly, competitive forces 
constrain the Exchange's transaction fees, and market participants can 
readily trade on competing venues if they deem pricing levels at those 
other venues to be more favorable. In response to competitive pricing, 
the Exchange, like other options exchanges, offers rebates and assesses 
fees for certain order types executed on or routed through the 
Exchange. The Exchange notes too that other options exchanges currently 
approximate routing fees in a similar manner as the Exchange's current 
approach to assessing approximate routing fees, as discussed below.\4\
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    \3\ See Cboe Global Markets U.S. Options Monthly Market Volume 
Summary (November 23, 2020), available at https://markets.cboe.com/us/options/market_statistics/.
    \4\ See e.g., NYSE Arca Options Fees and Charges, ``Routing 
Fees'', which provides routing fees of ``$0.11 per contract on 
orders routed and executed on another exchange, plus (i) any 
transaction fees assessed by the away exchange (calculated on an 
order-by-order basis since different away exchanges charge different 
amounts) or (ii) if the actual transaction fees assessed by the away 
exchange(s) cannot be determined prior to the execution, the highest 
per contract charge assessed by the away exchange(s) for the 
relevant option class and type of market participant (e.g., 
Customer, Firm, Broker/Dealer, Professional Customer or Market 
Maker).''
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    The Exchange assesses fees in connection with orders routed away to 
various exchanges. Currently, under the Routing Fees table of the Fee 
Schedule, fee codes RD, RE, RF, RG, RH and RI are appended to certain 
Customer orders in ETF and Equity options, as follows:
     Fee code RD is appended to Customer orders in ETF/Equity 
options \5\ for greater than or equal to 100 contracts routed to NYSE 
American (``AMEX''), BOX Options Exchange (``BOX''), Nasdaq BX Options 
(``BX''), Cboe EDGX Exchange, Inc. (``EDGX''), ISE Mercury, LLC 
(``MERC''), MIAX Options Exchange (``MIAX'') or Nasdaq PHLX LLC 
(``PHLX''), and assesses a charge of $0.33 per contract;
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    \5\ The Exchange also updates fee codes RD and RF to make clear 
that ``equity'' options are included in the description. The System 
currently applies the applicable routing fee codes (RD, RE, RF, RG 
and RH) to both ETF and equity options.
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     fee code RE is appended to Customer orders in ETF/Equity 
options for less than 100 contracts routed to AMEX, BOX, BX, EDGX, 
MERC, MIAX or PHLX, and assesses a charge of $0.15 per contract;
     fee code RF is appended to Customer orders in ETF/Equity, 
Penny options for greater than or equal to 100 contracts routed to NYSE 
Arca, Inc (``ARCA''), Cboe BZX Exchange, Inc. (``BZX''), Cboe C2 
Exchange, Inc. (``C2''), Nasdaq ISE (``ISE''), ISE Gemini, LLC 
(``GMNI''), MIAX Emerald Exchange (``EMLD''), MIAX Pearl Exchange 
(``PERL'') or Nasdaq Options Market LLC (``NOMX), and assesses a charge 
of $0.83 per contract;
     fee code RG is appended to Customer orders in ETF/Equity, 
Non-Penny options for greater than or equal to 100 contracts routed to 
ARCA, BZX, C2, ISE, GMNI, EMLD, PERL or NOMX, and assesses a charge of 
$1.18 per contract;
     fee code RH is appended to Customer orders in ETF/Equity, 
Penny options for less than 100 contracts routed to ARCA, BZX, C2, ISE, 
GMNI, EMLD, PERL or NOMX, and assesses a charge of $0.65 per contract; 
and
     fee code RI is appended to Customer order in ETF/Equity, 
Non-Penny options for less than 100 contracts routed to ARCA, BZX, C2, 
ISE, GMNI, EMLD, PERL or NOMX, and assesses a charge of $1.00 per 
contract.
    The Exchange proposes to remove fee codes RE, RG and RH and amend 
fee codes RD, RF and RI by removing the 100-contract size limit from 
each and updating the fees assessed to $0.25 per contract, $0.75 per 
contract and $1.25 per contract, respectively. The Exchange believes 
that eliminating fee codes RE, RG and RH and the 100-contract 
contingency currently applicable to orders that yield fee codes RD, RF 
and RI will simplify and streamline the System's billing process for 
routed Customer orders in ETF and equity options. By removing the size 
contingency, orders to which RE, RG and RH are currently applicable may 
then be absorbed into orders to which RD, RF and RI are currently 
applicable and the routing fees for Customer orders in ETF and equity 
options may be billed as one of three fee codes, instead of six. For 
example, fee code RG would, prior to this proposal, be appended to 
Customer orders in ETF/Equity Non-Penny options for 100 contracts or 
more routed to ARCA, BZX, C2, ISE, GMNI, EMLD, PERL or NOMX. However, 
without the size contingency, RI will now be appended to all Customer 
orders in ETF/Equity Non-Penny options routed to the same away 
exchanges. Regarding the proposed rate changes for the remaining 
Customer ETF/Equity routing fee codes (RD, RF and RI), the Exchange 
notes that its current approach to routing fees is to set forth in a 
simple manner certain sub-categories of fees that approximate the cost 
of routing to other options exchanges based on the cost of transaction 
fees assessed by each venue as well as a flat $0.15 assessment that 
covers costs to the Exchange for routing (i.e., clearing fees, 
connectivity and other infrastructure costs, membership fees, etc.) 
(collectively, ``Routing Costs''). The Exchange then monitors

[[Page 83117]]

the fees charged as compared to the costs of its routing services and 
adjusts its routing fees and/or sub-categories to ensure that the 
Exchange's fees do indeed result in a rough approximation of overall 
Routing Costs, and are not significantly higher or lower in any area. 
As a result, the Exchange believes the proposed amended rates for RD, 
RF and RI are adjusted to reflect an appropriate, current approximation 
of the routing costs to the applicable sub-category group of away 
exchanges for ETF/Equity options of any order size, and these routing 
fee codes will absorb the orders to which RE, RG and RH are currently 
appended. The Exchange notes that routing through the Exchange is 
optional and that TPHs will continue to be able to choose where to 
route their Customer orders in ETF and equity options.
    The Exchange also proposes to update routing fee codes RD and RF in 
the Routing Fees table of the Fees Schedule connection with routed 
Customer orders in SPY options to Nasdaq PHLX LLC (``PHLX''). As 
described above, routing fee code RD is appended to Customer orders in 
ETF/Equity options routed to AMEX, BOX, BX, EDGX, MERC, MIAX or PHLX 
and assesses a charge of $0.25 per contract (as proposed), and routing 
fee code RF is appended to Customer orders in ETF options in Penny 
classes routed to ARCA, BZX, C2, ISE, GMNI, EMLD, PERL, NOMX or PHLX 
and assesses a charge of $0.75 per contract (as proposed). Currently, 
PHLX assesses a charge of $0.42 per contract for Customer orders in SPY 
options that remove liquidity.\6\ As described above, the Exchange 
currently assesses a routing fee of $0.33 per contract for Customer 
orders routed to PHLX which yield fee code RP. This structure does not 
currently take into account, and approximately cover, the $0.42 per 
contract fee assessed by PHLX for Customer orders in SPY options. 
Therefore, in order to assess fees more in line with the Exchange's 
current approach to routing fees, that is, in a manner that 
approximates the cost of routing Customer orders in SPY options to 
PHLX, along with other away options exchanges, based on the general 
cost of transaction fees assessed by the sub-category of away options 
exchanges for such orders (as well as the Exchange's routing costs), 
the Exchange proposes to exclude Customer orders is SPY options routed 
to PHLX from orders that yield fee code RD and are assessed a charge of 
$0.25 per contract (as proposed) and, instead, add Customer orders 
routed to PHLX in SPY options only to orders that yield fee code RF \7\ 
and are assessed a charge of $0.75 per contract (as proposed).
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    \6\ See Nasdaq Phlx Options 7 Pricing Schedule, Section 3 
``Rebates and Fees for Adding and Removing Liquidity in SPY'', Part 
A.
    \7\ The Exchange notes that SPY options are part of the Penny 
Program.
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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,\10\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed rule change to remove fee 
codes RE, RG and RH and remove the size contingency for fee codes RD, 
RF and RI is reasonable in that it is reasonably designed to simplify 
and streamline the System's billing process for routed Customer orders 
in ETF and equity options. By removing the size contingency, orders to 
which fee codes RE, RG and RH are currently applicable may then be 
absorbed into the orders to which fee codes RD, RF and RI are 
applicable and the routing fees for Customer orders in ETF and equity 
options may be billed as one of three fee codes, instead of six. The 
Exchange also believes that it is reasonable to amend the rates that 
correspond to fee codes RD, RF and RI because the proposed rates are 
aligned with the Exchange's current approach to approximating the cost 
of routing to other options exchanges based on the cost of transaction 
fees assessed by each venue as well as the Exchange's Routing Cost. The 
Exchange believes the proposed amended rates for orders that yield fee 
codes RD, RF and RI are adjusted to reasonably reflect an appropriate, 
current approximation of the routing costs for ETF/Equity options of 
any order size to the sub-category group of away exchanges, and these 
routing fee codes will absorb the orders to which fee codes RE, RG and 
RH are currently appended. For example, routed Customer orders in ETF/
Equity Non-Penny options that yield fee code RG (greater than or equal 
to 100 contracts) are currently assessed a routing fee of $1.18 per 
contract, while routed Customer orders in ETF/Equity Non-Penny options 
that yield fee code RH (less than 100 contracts) are currently assessed 
a routing fee of $1.00. However, upon the removal of fee code RG, those 
routed Customer orders in ETF/Equity Non-Penny options will yield fee 
code RH, which will assess a proposed fee of $1.25, which the Exchange 
believes is appropriately adjusted to reflect the current approximate 
cost of routing Customer orders in ETF/Equity Non-Penny options of all 
sizes to the same sub-category group of away exchanges. The Exchange 
notes that routing through the Exchange is optional and that TPHs will 
continue to be able to choose where to route their Customer orders in 
ETF and equity options in the same sub-category group of away exchanges 
as they currently may choose to route. The Exchange believes that the 
proposed rule change is equitable and not unfairly discriminatory 
because TPHs' routed Customer orders in ETF/Equity options will 
continue to be automatically and uniformly assessed the applicable 
routing charges.
    The Exchange believes the proposed rule change to amend fee codes 
RD and RF to account for PHLX's current assessment of fees for Customer 
orders in SPY options is reasonable because it is reasonably designed 
to assess routing fees in line with the Exchange's current approach to 
routing fees. That is, the proposed rule change is intended to include 
Customer orders in SPY options routed to PHLX in the most appropriate 
sub-category of fees that approximates the cost of routing to a group 
of away options exchanges (including PHLX) based on the cost of 
transaction fees assessed by each venue as well as Routing Costs to the 
Exchange. The Exchange believes that the proposed rule change is 
equitable and not unfairly discriminatory because all TPHs' Customer 
orders in SPY routed to PHLX will automatically yield fee code RQ

[[Page 83118]]

and uniformly be assessed the corresponding fee.

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 intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
    The Exchange does not believe the proposed rule change to remove 
certain routing fee codes and to update other routing fee codes 
accordingly to apply instead, will impose any burden on intramarket 
competition because all TPHs' routed Customer orders in ETF/Equity 
options will continue to be able to route to the same sub-category 
group of away exchanges and will automatically and uniformly be 
assessed the applicable routing fees. Likewise, all TPH's Customer 
orders in SPY options routed to PHLX will automatically yield fee code 
RF and uniformly be assessed the corresponding fee.
    The Exchange does not believe that the proposed rule changes in 
connection with routing fees will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because, as previously discussed, the Exchange 
operates in a highly competitive market. The Exchange notes that other 
options exchanges approximate routing costs in a similar manner as the 
Exchange's current approach.\11\ Also, the Exchange notes that, in 
addition to Cboe Options, TPHs have numerous alternative venues that 
they may participate on and director their order flow, including 15 
other options exchanges, as well as off-exchange venues, where 
competitive products are available for trading. Based on publicly 
available information, no single options exchange has more than 16% of 
the market share of executed volume of options trades.\12\ Therefore, 
no exchange possesses significant pricing power in the execution of 
option order flow. Moreover, the Commission has repeatedly expressed 
its preference for competition over regulatory intervention in 
determining prices, products, and services in the securities markets. 
Specifically, in Regulation NMS, the Commission highlighted the 
importance of market forces in determining prices and SRO revenues and, 
also, recognized that current regulation of the market system ``has 
been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \13\ The fact that this market is competitive has also 
long been recognized by the courts. In NetCoalition v. Securities and 
Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \14\ Accordingly, the Exchange does not believe its 
proposed changes to the incentive programs impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \11\ See supra note 4.
    \12\ See supra note 3.
    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \14\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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 \15\ and paragraph (f) of Rule 19b-4 \16\ 
thereunder, because it establishes a due, fee, or other charge imposed 
by the Exchange.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f).
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    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.

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-2020-114 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-2020-114. 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 should refer to File Number SR-CBOE-2020-114 and should be 
submitted on or before January 11, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28009 Filed 12-18-20; 8:45 am]
BILLING CODE 8011-01-P