Document ID: SEC-2021-1603-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2021-11-17T05:00Z

[Federal Register Volume 86, Number 219 (Wednesday, November 17, 2021)]
[Notices]
[Pages 64283-64290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25016]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93552; File No. SR-CBOE-2021-065]

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

November 10, 2021.
    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 November 1, 2021, 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

[[Page 64284]]

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 in connection 
with: The Global Trading Hours (``GTH'') Executing Agent Subsidy 
Program; surcharges applicable to Non-Customer orders executed in long-
term index options series (``LEAPS'') for S&P 500 Index (``SPX'') 
options; a waiver applicable to transaction fees for Customer orders 
executed in Cboe Volatility Index (``VIX'') options during GTH; and the 
GTH VIX/VIX Weekly (``VIXW'') Lead Market-Maker (``LMM'') Incentive 
Program, effective November 1, 2021.
GTH Executing Agent Subsidy Program
    The proposed rule change amends the GTH Executing Agent Subsidy 
Program to adopt volume-based tiers that correspond to increasingly 
higher subsidies. In particular, the GTH Executing Agent Subsidy 
Program offers a monthly subsidy to Trading Permit Holders (``TPHs'') 
with executing agent operations \3\ during the GTH trading session. 
Pursuant to the current program, a designated GTH executing agent will 
receive a $5,000 monthly subsidy if it executes at least 1,000 
contracts executed on behalf of customers (including public and broker-
dealer customers) during GTH in a calendar month. To become a 
designated GTH executing agent, a TPH must submit a form to the 
Exchange no later than 3:00 p.m. on the second to last business day of 
a calendar month to be designated an GTH executing agent under the 
program, and thus eligible for the subsidy, beginning the following 
calendar month. The TPH must include on or with the form information 
demonstrating it maintains an GTH executing agent operation: (1) 
Physically staffed throughout each entire GTH trading session and (2) 
willing to accept and execute orders on behalf of customers, including 
customers for which the agent does not hold accounts. The designation 
will be effective the first business day of the following calendar 
month, subject to the Exchange's confirmation the TPH's GTH executing 
agent operations satisfies these two conditions and will remain in 
effect until the Exchange receives an email from the TPH terminating 
its designation or the Exchange determines the TPH's GTH executing 
agent operation no longer satisfies these two conditions. Within two 
business days following the end of a calendar month, in order to 
receive the subsidy for that month, the designated GTH executing agent 
must submit to the Exchange (in a form and manner determined by the 
Exchange) documentation and other evidence it executed at least 1,000 
contracts on behalf of customers during GTH that month.
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    \3\ An executing agent operation is one that accepts orders from 
customers (who may be public or broker-dealer customers and 
including customers for which the agent does not hold accounts) and 
submits the orders for execution (either directly to the Exchange or 
through another TPH).
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    As stated above, the Exchange now proposes to adopt volume-based 
tiers that correspond to increasingly higher monthly subsidies for 
designated GTH executing agents. Specifically, as proposed, a 
designated GTH executing agent will receive the monthly subsidy amount 
that corresponds to the number of contracts executed on behalf of 
customers (including public and broker-dealer customers) during GTH in 
a calendar month per the GTH Executing Agent Subsidy Program table, as 
follows:

------------------------------------------------------------------------
                GTH monthly customer volume                    Subsidy
------------------------------------------------------------------------
0-999 contracts............................................        $0.00
1,000-4,999 contracts......................................        5,000
5,000-29,999 contracts.....................................       15,000
30,000+ contracts..........................................       20,000
------------------------------------------------------------------------

    The proposed rule change removes the language related to the 
requirement that a designated GTH executing agent must submit to the 
Exchange (in a form and manner determined by the Exchange) 
documentation and other evidence of the number of contracts it executed 
on behalf of customers in a month, as the Exchange has automated the 
process for documenting this for designated GTH executing agents each 
month. The current timing, process, requirements and all other 
documentation applicable to designated GTH executing agent under the 
GTH Executing Agent Subsidy Program will continue to apply in the same 
manner.
    The proposed volume-based tiers are designed to encourage 
designated GTH executing agents to increase their order flow executed 
as agent in the symbols that trade during GTH (SPX and VIX) to meet the 
proposed volume thresholds in order to receive the proposed 
corresponding subsidies, as the proposed tiers present additional 
opportunities for designated GTH agents to receive larger subsidies 
than that which is currently offered by the program. As such, the 
proposed tiers may also incentivize more TPHs to become designated GTH 
executing agents that may submit customer (including public and broker-
dealer customer) order flow during GTH to meet the proposed volume 
thresholds and receive the corresponding subsidies. The Exchange notes 
that incentivizing TPHs to conduct executing agent operations willing 
to accept orders from all customers during GTH is designed to increase 
customer accessibility to the GTH trading session. The Exchange 
believes that increased order flow through designated GTH executing 
agents would allow the Exchange to grow participation during GTH, which 
may benefit all market participants, as additional liquidity to the 
Exchange during GTH would create more trading opportunities during GTH, 
and in turn attract market participants to submit additional order flow 
during GTH.
SPX LEAPS Surcharge
    The Exchange intends to begin listing SPX LEAPS options with 
expirations more than three years out on November 1, 2021. Index LEAPS 
are index options series that expire from 12 to 180 months

[[Page 64285]]

from the date of issuance.\4\ In connection with the planned listing of 
SPX LEAPS options, the Exchange proposes to adopt surcharge fees for 
Non-Customer \5\ orders executed in SPX LEAPS options that vary 
according to time-to-expiration in Rate Table--Underlying Symbol List A 
of the Fees Schedule, as follows:
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    \4\ See Rule 4.13(b).
    \5\ Non-Customers include all capacities except for ``C'' 
(Customer), specifically: ``M'' capacity (Market-Maker); ``N'' 
capacity (Non-TPH Market-Maker); ``F'' capacity (Clearing TPH); 
``L'' capacity (Non-Clearing TPH Affiliates); ``J'' capacity (Joint 
Back-Office); ``U'' capacity (Professional); and ``B'' capacity 
(Broker-Dealer).
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     Non-Customer orders executed in SPX LEAPS options that 
expire three years to less than four years out will be assessed a 
surcharge fee of $1.00 per contract;
     Non-Customer orders executed in SPX LEAPS options that 
expire four years to less than five years out will be assessed a 
surcharge fee of $1.50 per contract;
     Non-Customer orders executed in SPX LEAPS options that 
expire five years to less than six years out will be assessed a 
surcharge fee of $2.00; and
     Non-Customer orders executed in SPX LEAPS options that 
expire six years out or more will be assessed a surcharge fee of $2.50.
    The Exchange anticipates SPX LEAPS may attract a different 
customer-base and generally sustain lower volumes than that of standard 
SPX options given the relatively higher premium prices, implied 
volatility, and overall risk associated with trading SPX LEAPS as a 
result of their long-dated expirations. Therefore, in order to 
initially and continue to list SPX LEAPS, as well as attempt to grow 
liquidity in these series, the Exchange must expend a number of 
resources. As such, the proposed SPX LEAPS surcharge fees are designed 
to assist the Exchange in recouping the resources expended in 
developing and maintaining a market for SPX LEAPS options. The Exchange 
notes that other index options are also subject to surcharge fees.\6\
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    \6\ See generally Cboe Options Fees Schedule, Rate Table--
Underlying Symbol List A.
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GTH VIX Transaction Fees Waiver
    The Exchange proposes to waive transaction fees for Customer orders 
executed in VIX options during GTH through December 31, 2022. Pursuant 
to the Rate Table--Underlying Symbol List A in the Fees Schedule, 
Customer simple orders and Customer complex orders executed in VIX 
options are assessed a transaction fee by premium price. Such 
transaction fees are applicable during Regular Trading Hours (``RTH'') 
and GTH. Customer simple orders in VIX options with a premium price 
between $0.00 and $0.10 are assessed a transaction fee of $0.10 per 
contract and complex orders with the same premium price range are 
assessed a transaction fee of $0.05 per contract. Customer simple 
orders in VIX options with a premium price between $0.11 and $0.99 are 
assessed a transaction fee of $0.25 per contract and complex orders 
with the same premium price range are assessed a transaction fee of 
$0.17 per contract. Customer simple orders in VIX options with a 
premium price between $1.00 and $1.99 are assessed a transaction fee of 
$0.40 per contract and complex orders with the same premium price range 
are assessed a transaction fee of $0.30 per contract. Both Customer 
simple and complex orders in VIX options with a premium price of $2.00 
or more are assessed a transaction fee of $0.45 per contract.
    Proposed footnote 32 provides that transactions fees will be waived 
for Customer orders executed in VIX options during GTH through December 
31, 2022 and the proposed rule change appends footnote 32 to the line 
items in Rate Table--Underlying Symbol List A applicable to transaction 
fees for Customer simple and complex orders in VIX options.\7\ The 
proposed waiver is designed to encourage customer order flow in VIX 
options during GTH. As described above, the Exchange wishes to promote 
the growth of its GTH trading session. Additionally, the Exchange has 
observed lower volume and participation in VIX options during GTH than 
compared to volume and participation in SPX options (the other class 
currently available for trading during GTH). As such, it believes that 
incentivizing increased customer order flow in VIX options during GTH 
would attract additional liquidity to the Exchange, providing market 
participants with more trading opportunities and signaling an increase 
in Market-Maker activity, which facilitates tighter spreads. This may 
cause an additional corresponding increase in order flow from other 
market participants, contributing overall towards a robust and well-
balanced market ecosystem, particularly in VIX options during GTH.
---------------------------------------------------------------------------

    \7\ For clarity, the proposed rule change also appends proposed 
footnote 32 to the line item containing VIX in the Customer Large 
Trade Discount table in the Fees Schedule.
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GTH VIX/VIXW LMM Incentive Program
    The proposed rule change also amends the GTH VIX/VIXW LMM Incentive 
Program. The GTH VIX/VIXW LMM Incentive Program provides a rebate to 
TPHs appointed as LMMs to the program that meet certain quoting 
standards in VIX and VIXW options series in a month. The Exchange notes 
that meeting or exceeding the quoting standards (both current and as 
proposed; described in further detail below) in VIX or VIXW to receive 
the applicable rebate (both currently offered and as proposed; 
described in further detail below) is optional for an LMM appointed to 
the program. Rather, an LMM appointed to the program is eligible to 
receive a rebate if it satisfies the applicable quoting standards, 
which the Exchange believes encourages the LMM to provide liquidity in 
VIX/VIXW options during GTH. The Exchange may consider other exceptions 
to the programs' quoting standards based on demonstrated legal or 
regulatory requirements or other mitigating circumstances. In 
calculating whether an LMM appointed to the program meets the program's 
basic and heightened quoting standards each month, the Exchange 
excludes from the calculation for each set of quoting standards the 
business day in which the LMM missed meeting or exceeding the quoting 
standards in the highest number of the applicable series that month.\8\
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    \8\ The Exchange recently implemented basic and heightened 
quoting standards in the program. See Securities Exchange Act 
Release No. 93348 (October 15, 2021), 86 FR 58335 (October 21, 2021) 
(SR-CBOE-2021-058). The proposed rule change now makes a clarifying 
update to the language regarding the Exchange's exclusion of an 
LMM's worst quoting day in a month to account for the separate sets 
of quoting requirements. Specifically, the proposed rule change 
clarifies that an LMM's worst quoting day will be excluded from the 
calculation applicable to each set of quoting standards for that 
month.
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    Currently, the program provides that if an LMM in VIX/VIXW provides 
continuous electronic quotes during GTH that meet or exceed the basic 
quoting standards in at least 99% of each of the VIX and VIXW series, 
90% of the time in a given month, the LMM will receive a rebate for 
that month in the amount of $15,000 for VIX and $5,000 for VIXW (or 
pro-rated amount if an appointment begins after the first trading day 
of the month or ends prior to the last trading day of the month) for 
that month. Additionally, if the appointed LMM provides continuous 
electronic quotes during GTH that meet or exceed the VIX heightened 
quoting standards in at least 99% of the VIX series, 90% of the time in 
a given

[[Page 64286]]

month, the LMM will receive a rebate for that month of $0.03 per VIX/
VIXW contract executed in its Market-Maker capacity during RTH.
    The proposed rule change seeks to amend the VIXW basic quoting 
standards, which are currently as follows:

------------------------------------------------------------------------
                                                       Maximum allowable
                    Premium level                            width
------------------------------------------------------------------------
$0.00-$100.00........................................             $10.00
$100.01-$200.00......................................              16.00
Greater than $200.000................................              24.00
------------------------------------------------------------------------

    The proposed rule change amends the VIXW basic quoting standards to 
reflect the following:

----------------------------------------------------------------------------------------------------------------
                                         Less than 21 days to expiration      21 days or greater to expiration
            Premium level            ---------------------------------------------------------------------------
                                            Width               Size              Width               Size
----------------------------------------------------------------------------------------------------------------
                                          VIX Value at Prior Close <18
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00.........................              $1.00                 10              $1.50                 10
$1.01-$3.00.........................               1.50                 10               2.50                 10
$3.01-$5.00.........................               2.50                  3               4.00                  3
$5.01-$10.00........................               4.00                  1               6.00                  1
$10.01-$30.00.......................               6.00                  1              10.00                  1
Greater than 30.00..................              10.00                  1              10.00                  1
----------------------------------------------------------------------------------------------------------------
                                       VIX Value at Prior Close from 18-25
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00.........................               1.50                  5               2.00                  5
$1.01-$3.00.........................               2.50                  5               4.00                  5
$3.01-$5.00.........................               4.00                  1               5.00                  1
$5.01-$10.00........................               6.00                  1               8.00                  1
$10.01-$30.00.......................              10.00                  1              10.00                  1
Greater than $30.00.................              10.00                  1              10.00                  1
----------------------------------------------------------------------------------------------------------------
                                   VIX Value at Prior Close from 25
----------------------------------------------------------------------------------------------------------------
$0.00-$1.00.........................              10.00                  1              10.00                  1
$1.01-$3.00.........................              10.00                  1              10.00                  1
$3.01-$5.00.........................              10.00                  1              10.00                  1
$5.01-$10.00........................              10.00                  1              10.00                  1
$10.01-$30.00.......................              10.00                  1              10.00                  1
Greater than $30.00.................              10.00                  1              10.00                  1
----------------------------------------------------------------------------------------------------------------

    The Exchange believes the proposed basic quoting requirements for 
VIXW options under the GTH VIX/VIXW LMM Incentive Program are designed 
to continue to encourage LMMs appointed to the program to provide 
significant liquidity in VIXW options during GTH. The proposed basic 
quoting standards for VIXW options provide for tighter widths than the 
current basic quoting standards and implement size standards based on 
finer premium ranges. As such, the proposed rule change offers LMMs 
appointed to the program a more challenging opportunity, thus further 
incentive, to strive to meet the VIXW basic quoting standards in order 
to receive the applicable rebate. The Exchange notes that the proposed 
rule change also seeks to tailor the VIXW basic quoting standards to 
better reflect then-current market conditions and market 
characteristics the Exchange has observed in VIXW options, as the 
proposed VIXW basic quoting standards that are applicable depend on the 
VIX Index value at the prior market close (i.e., at the close of the 
preceding RTH session). Spreads in VIXW options generally widen when 
the market experiences higher volatility (i.e., the VIX Index level is 
higher in value). Therefore, to encourage LMMs to meet the proposed 
basic quoting standards regardless of market volatility, the proposed 
rule change adopts generally wider widths and smaller quote sizes where 
the market may be experiencing higher volatility (i.e., when the value 
of the VIX Index in the proposed VIX value categories becomes 
relatively higher compared to the closing index value from the 
preceding trading session). The proposed rule change also adopts 
generally tighter widths in the nearer in term expiration category 
(less than 21 days to expiration) than that of the longer in term 
expiration category (21 days or greater to expiration). The Exchange 
believes the proposed rule change provides a balance between providing 
more challenging opportunities, thus greater quoting incentive, in the 
expiration category that is nearer in term and easing the width 
requirements in the expiration category that is longer in term, as the 
Exchange understands that demand and participation is generally lower 
for options that expire farther out, which may make it more difficult 
for LMMs to quote within tighter widths. The Exchange notes that the 
basic quoting standards currently in place for VIX options under the 
program are tailored in a similar manner.

[[Page 64287]]

    The Exchange also proposes to update the rebate amount received for 
meeting the VIXW basic quoting standards, as proposed, in a given 
month, by slightly increasing the rebate amount from $5,000 to $10,000. 
The proposed increase is designed to further incentivize LMMs appointed 
to the program to provide significant liquidity in VIXW options in 
order to meet the proposed basic quoting standards. Finally, the 
proposed rule change marginally decreases the amount of the additional 
rebate that applies to VIX/VIXW contracts executed in RTH where an 
appointed LMM meets the VIX heightened quoting standards from $0.03 to 
$0.02. The Exchange notes that it is not required to maintain this 
additional incentive at any amount and that an LMM will continue to 
have the opportunity to receive the additional rebate on its VIX/VIXW 
orders executed in RTH, albeit at a marginally lower rate.
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.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ 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,\11\ which requires that Exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its TPHs and other persons using its facilities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(4).
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    First, the Exchange believes that the proposed rule changes are 
reasonable. In particular, the Exchange believes that the proposed rule 
change to adopt a volume-based tier structure for the GTH Executing 
Agent Subsidy Program is reasonably designed to encourage designated 
GTH executing agents to increase their customer order flow in the 
symbols that trade during GTH and to incentivize more TPHs to become 
designated GTH executing agents that may submit order flow during GTH, 
to meet the proposed volume thresholds and receive the corresponding 
subsidies. By incentivizing TPHs to conduct executing agent operations 
willing to accept orders from all customers during GTH, the proposed 
rule change is reasonably designed to increase customer accessibility 
and increase order flow to the GTH trading session. The Exchange 
believes that increased order flow would allow the Exchange to grow 
participation in the GTH trading session to the benefit of all market 
participants that trade during GTH, by providing greater trading 
opportunities as a result of increased liquidity, thereby attracting 
additional order flow from market participants during GTH. The Exchange 
notes that the Fees Schedule currently offers many other programs with 
similar volume-based incentive tier structures.\12\
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    \12\ See e.g., Cboe Options Fees Schedule, Liquidity Provider 
Sliding Scale and Floor Broker Sliding Scale Rebate Program.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change to adopt 
surcharge fees based on the time to expiration for SPX LEAPS (which the 
Exchange intends to begin listing on November 1, 2021) is reasonable 
because the surcharge fees will assist the Exchange in recouping some 
of the resources it expends developing and maintaining a market for SPX 
LEAPS, which the Exchange anticipates will have a different customer 
base and sustain relatively lower volume than that of standard SPX 
options. The Exchange notes that it also assesses other surcharge fees 
on proprietary index options pursuant to Rate Table--Underlying Symbol 
List A in the Fees Schedule for similar reasons. While the proposed 
surcharge fees for SPX LEAPS are generally higher than the other 
surcharges fees in Rate Table--Underlying Symbol List A, the Exchange 
believes the proposed amounts are reasonably commensurate with the 
market characteristics of SPX LEAPS, where relatively lower volumes 
generally result in liquidity providers quoting wider spreads, which 
may absorb higher premiums and costs.
    The Exchange believes that the proposed rule change to waive 
transaction fees for Customer orders executed in VIX options during GTH 
is reasonably designed to encourage customer order flow in VIX options 
during GTH. The Exchange wishes to promote the growth of its GTH 
trading session, and, as the Exchange has observed comparatively lower 
volume and participation in VIX options during GTH, it believes that 
incentivizing increased customer order flow in VIX options during GTH 
would attract additional liquidity to the Exchange. As described above, 
increased customer order flow facilitates increase trading 
opportunities and attracts Market-Maker activity, which facilitates 
tighter spreads and may ultimately signal an additional corresponding 
increase in order flow from other market participants, contributing 
overall towards a robust and well-balanced market ecosystem, 
particularly in VIX options during GTH. The Exchange notes that it 
similarly waives fees for other types of Customer orders in the Fees 
Schedule.\13\
---------------------------------------------------------------------------

    \13\ See Cboe Options Fees Schedule, footnote 8, which waives 
the transaction fee for customer orders in ETF and ETN options 
executed in open outcry or in AIM or as a QCC or as a FLEX Options 
transaction, and footnote 9, which waives transaction fees for 
customer orders that provide or remove liquidity that are 99 
contracts or less in ETF and ETN options.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change to amend the 
GTH VIX/VIXW LMM Incentive Program is reasonable. Particularly, the 
Exchange believes the proposed basic quoting requirements are 
reasonably designed to continue to encourage LMMs appointed to the 
program to provide significant liquidity in VIXW options during GTH. 
Additionally, the Exchange believes that it is reasonable to adopt 
tighter widths and implement sizes based on finer premium categories in 
the basic quoting standards for VIXW options in order to provide more 
challenging opportunities, thus greater quoting incentive, for LMMs to 
strive to meet the basic quoting standards and receive the 
corresponding rebate, as proposed. As such, the Exchange believes the 
proposed rule change is reasonably designed to encourage LMMs appointed 
to the program to meet the VIXW basic quoting standards (and receive 
the rebate, as amended) by increasing their quoting activity and 
posting tighter spreads and more aggressive quotes in VIXW options. An 
increase in quoting activity and tighter quotes tends to signal 
additional corresponding increase in order flow from other market 
participants, which benefits all investors by deepening the Exchange's 
liquidity pool, potentially providing even greater execution incentives 
and opportunities, offering additional flexibility for all investors to 
enjoy cost savings, supporting the quality of price discovery, 
promoting market transparency and improving investor

[[Page 64288]]

protection. The Exchange also believes that the proposed basic quoting 
standards are reasonably tailored to reflect then-current market 
conditions and market characteristics in VIXW options, as they relate 
to volatility in the market (i.e., VIX Index level) as well as time-to-
expiration. The Exchange notes that the basic quoting standards 
currently in place for VIX options under the program are tailored in a 
similar manner.
    In addition to this, the Exchange believes that it is reasonable to 
amend the monthly rebate amounts applicable to VIXW options under the 
GTH VIX/VIXW LMM Incentive Program. The Exchange believes that the 
proposed increased rebate amount (from $5,000 to $10,000) for VIXW 
options is reasonably designed to continue to incentivize an appointed 
LMM to meet the applicable quoting standards for VIXW options, thereby 
providing liquid and active markets, which facilitates tighter spreads, 
increased trading opportunities, and overall enhanced market quality to 
the benefit of all market participants. The Exchange also believes that 
the proposed increase is reasonably commensurate with the proposed 
basic quoting standards for VIXW, which, as described above, present 
more challenging opportunities for LMMs. The Exchange also believes 
that the proposed rule change to reduce the additional rebate 
applicable to an LMM's VIX/VIXW orders executed in RTH where an LMM 
meets the VIX heightened quoting requirements in a month is reasonable 
because an LMM will still be able to meet the heightened quoting 
requirements and receive the additional rebate, albeit at a marginally 
reduced rate (from $0.03 to $0.02). The Exchange notes that it is not 
required to maintain this additional incentive at any amount.
    The Exchange also believes that the proposed rule changes are 
equitable and not unfairly discriminatory. In particular, the Exchange 
believes that offering volume-based incentives that correspond to 
higher subsidies to designated GTH executing agents is equitable and 
not unfairly discriminatory because TPHs that conduct executing agent 
operations willing to accept orders from all customers take on 
additional risks and potential costs (including those related to 
staffing and clearing) associated with this type of business. Such TPHs 
also provide benefits to investors during GTH, including increased 
customer accessibility to the GTH trading session and increased order 
flow. All TPHs that conduct this type of operation during GTH will 
continue to have the opportunity to become a designated GTH executing 
agent and thus eligible for the monthly subsidy.
    The Exchange believes that the proposed surcharge fees for SPX 
LEAPS are equitable and not unfairly discriminatory because each 
proposed surcharge will apply equally to all Non-Customer orders SPX 
LEAPS in the corresponding expiry category. Likewise, the Exchange 
believes that the proposed waiver for Customer orders executed in VIX 
options in GTH is equitable and not unfairly discriminatory because the 
waiver will apply equally to all Customer transactions in VIX options 
during GTH. The Exchange also notes that, regarding the application of 
the proposed surcharge fees to Non-Customer orders and the transaction 
fee waiver to Customer orders, there is a history in the options 
markets of providing preferential treatment to customers and, as 
described herein, customer order flow tends to attract key liquidity 
from other market participants.
    Regarding the VIX/VIXW LMM Incentive Program, the Exchange believes 
that it is equitable and not unfairly discriminatory generally to 
continue to offer this financial incentive, including as amended, to 
LMMs appointed to the program, because it benefits all market 
participants trading in the corresponding products during GTH. As 
described above, the program encourages the appointed LMMs to satisfy 
the quoting standards, which may increase liquidity and provide more 
trading opportunities and tighter spreads. Indeed, the Exchange notes 
that these LMMs serve a crucial role in providing quotes and the 
opportunity for market participants to trade VIX/VIXW options, which 
can lead to increased volume, providing for robust markets. The 
Exchange ultimately offers the GTH VIX/VIXW LMM Incentive Program, as 
amended, to sufficiently incentivize the appointed LMMs to provide key 
liquidity and active markets in VIX/VIXW options during GTH, and 
believes that the program, as amended, will continue to encourage 
increased quoting to add liquidity in VIX/VIXW options to the benefit 
of investors. The Exchange also notes that an LMM appointed to the 
program may undertake added costs each month to satisfy that heightened 
quoting standards (e.g., having to purchase additional logical 
connectivity).
    In particular, the Exchange believes it is equitable and not 
unfairly discriminatory to adopt new VIXW quoting standards because 
such quoting standards will equally apply to any and all TPHs with LMM 
appointments to the GTH VIX/VIXW LMM Incentive Program that seek to 
meet the program's quoting standards in order to receive the rebates 
offered. The Exchange believes the amended rebate for VIXW options and 
the amended additional rebate applicable during RTH are equitable and 
not unfairly discriminatory because they, too, will equally apply to 
any TPH that is appointed as an LMM to the GTH VIX/VIXW LMM Incentive 
Program. Additionally, if an LMM appointed to the GTH VIX/VIXW LMM 
Incentive Program does not satisfy the quoting standards for any given 
month, then it simply will not receive the corresponding rebate offered 
by the program for that month.

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. 
Rather, as discussed above, the Exchange believes that the proposed 
change would encourage the submission of additional liquidity to the 
floor of a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution and price 
improvement opportunities for all TPHs. As a result, the Exchange 
believes that the proposed change furthers the Commission's goal in 
adopting Regulation NMS of fostering competition among orders, which 
promotes ``more efficient pricing of individual stocks for all types of 
orders, large and small.'' \14\
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    \14\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    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. As stated, all 
TPHs that conduct executing agent operations willing to accept orders 
from all customers will continue to have an opportunity to be eligible 
for the GTH Executing Agent Subsidy program. Also, such TPHs that 
conduct this type of operation take on additional risks and potential 
costs (including those related to staffing and clearing) associated 
with this type of business, and may provide benefits to investors 
during GTH, including increased customer accessibility to, and 
liquidity and trading opportunities during, the GTH trading session. 
Additionally, the proposed surcharge

[[Page 64289]]

fees and fee waiver will apply equally to the applicable orders for all 
similarly situated market participants (i.e., all Non-Customer orders 
in SPX LEAPS in the corresponding expiry categories and all Customer 
transactions in VIX options during GTH). The Exchange again notes that 
there is a history in the options markets of providing preferential 
treatment to customers and customer order flow tends to attract key 
liquidity from other market participants. Further, the proposed changes 
to the GTH VIXW/VIX LMM Incentive Program will apply to all LMMs 
appointed to the program in a uniform manner. To the extent the LMMs 
appointed to the program receive a benefit that other market 
participants do not, as stated, these LMMs in their role as Market-
Makers on the Exchange have different obligations and are held to 
different standards. For example, Market-Makers play a crucial role in 
providing active and liquid markets in their appointed products, 
thereby providing a robust market which benefits all market 
participants. Such Market-Makers also have obligations and regulatory 
requirements that other participants do not have. An LMM appointed to 
the program may undertake added costs each month that it needs to 
satisfy the quoting standards (e.g., having to purchase additional 
logical connectivity). The program is ultimately designed to attract 
additional order flow in VIX/VIXW options to the Exchange, wherein 
greater liquidity benefits all market participants by providing more 
trading opportunities, tighter spreads, and added market transparency 
and price discovery, and signals to other market participants to direct 
their order flow to those markets, thereby contributing to robust 
levels of liquidity.
    The Exchange also does not believe that the proposed changes will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the Act because each of the proposed 
changes applies only to fees and programs applicable to transactions in 
products exclusively listed on the Exchange. Additionally, the Exchange 
notes that it operates in a highly competitive market. TPHs have 
numerous alternative venues that they may participate on and direct 
their order flow, including 15 other options exchanges, many of which 
offer substantially similar price improvement auctions. Based on 
publicly available information, no single options exchange has more 
than 16% of the market share.\15\ Therefore, no exchange possesses 
significant pricing power in the execution of option order flow. 
Indeed, participants can readily choose to send their orders to other 
exchange, and, additionally off-exchange venues, if they deem fee 
levels at those other venues to be more favorable. 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.'' \16\ 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'. . . .''.\17\ Accordingly, the Exchange 
does not believe its proposed fee change imposes any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \15\ See Cboe Global Markets U.S. Options Market Volume Summary, 
Month-to-Date (October 25, 2021), available at https://markets.cboe.com/us/options/market_statistics/.
    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \17\ 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 \18\ and paragraph (f) of Rule 19b-4 \19\ 
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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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-CBOE-2021-065 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-2021-065. 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

[[Page 64290]]

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-2021-065 and should be submitted on 
or before December 8, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25016 Filed 11-16-21; 8:45 am]
BILLING CODE 8011-01-P