Document ID: SEC-2021-0239-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe C2 Exchange, Inc.
Posted Date: 2021-02-18T05:00Z

[Federal Register Volume 86, Number 31 (Thursday, February 18, 2021)]
[Notices]
[Pages 10142-10145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03213]

[[Page 10142]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91108; File No. SR-C2-2021-004]

Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Its Fees Schedule

February 11, 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 February 5, 2021, Cboe C2 Exchange, Inc. (the ``Exchange'' or 
``C2'') 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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') is filing with 
the Securities and Exchange Commission (``Commission'') a proposed rule 
change to amend the 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://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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 Fee Schedule to amend certain 
standard transaction fees for AAPL, QQQ, IWM and SLV transactions. 
Specifically, the Exchange proposes to (1) amend the transaction fee 
for public customer AAPL, QQQ, IWM and SLV orders that remove 
liquidity, (2) amend the rebate for C2 Market Maker AAPL, QQQ, IWM and 
SLV orders that add liquidity, (3) amend the rebate for non-Customer, 
non-Market Maker AAPL, QQQ, IWM and SLV orders that add liquidity and 
(4) adopt an enhanced rebate for C2 Market Maker AAPL, QQQ, IWM and SLV 
orders that are NBBO Joiners or NBBO Setters.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
February 1, 2021 (SR-C2-2021-003). On February 5, 2021, the Exchange 
withdrew that filing and submitted this proposal.
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    The Exchange first 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 and 
currently the Exchange represents approximately 3% of the market 
share.\4\ Thus, in such a low-concentrated and highly competitive 
market, no single options exchange, including the 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.
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    \4\ See Cboe Global Markets U.S. Options Market Volume Summary 
by Month (January 26, 2021), available at https://markets.cboe.com/us/options/market_statistics/.
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    First, the Exchange proposes to amend the transaction fee for 
Public Customer orders in AAPL, QQQ, IWM and SLV that remove liquidity. 
Currently, public customer orders in all equity, multiply-listed index, 
ETF and ETN penny options classes, including AAPL, QQQ, IWM and SLV, 
that remove liquidity are assessed a standard transaction fee of $0.43 
per contract and yield fee code ``PC''. The Exchange proposes to remove 
orders in AAPL, QQQ, IWM and SLV from fee code PC and, instead, assess 
fee code ``SC'' for Public Customer orders in AAPL, QQQ, IWM and SLV 
that remove liquidity. Fee code SC is currently appended to Public 
Customer orders in SPY that remove liquidity and assesses a reduced fee 
(from that of fee code PC) of $0.39 per contract.\5\
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    \5\ The Exchange notes that when it adopted the SPY pricing 
table and fee codes SC, SL, SM and SN, it inadvertently did not add 
these fee codes to the ``Fee Codes and Associated Fees'' table, 
which lists all available fee codes for orders on C2. The Exchange 
will now add these fee codes to the ``Fee Codes and Associated 
Fees'' table. This does not change any current rates or alter the 
description (except as proposed herein) of these fee codes. See 
Securities Exchange Release No. 89828 (September 11, 2020), 85 FR 
58078 (September 17, 2020) (SR-C2-2020-013).
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    The Exchange next proposes to amend the rebate for C2 Market Maker 
orders in AAPL, QQQ, IWM and SLV that add liquidity. Currently, C2 
Market Makers orders in all equity, multiply-listed index, ETF and ETN 
penny options classes, including AAPL, QQQ, IWM and SLV, that add 
liquidity are provided a rebate of $0.41 per contract and yield fee 
code ``PM''. The Exchange proposes to remove orders in AAPL, QQQ, IWM 
and SLV from fee code PM and, instead, assess existing fee code ``SM'' 
for C2 Market Maker orders in AAPL, QQQ, IWM and SLV. Fee code SM is 
currently appended to C2 Market Maker orders in SPY that add liquidity 
and offer a reduced rebate (from that of fee code PM) of $0.26 per 
contract.
    The Exchange also proposes to amend the rebate for non-Market 
Maker, non-Customer orders in AAPL, QQQ, IWM and SLV that add 
liquidity. Currently, non-Market Maker, non-Customer orders (i.e., 
Professional Customer, Firm, Broker/Dealer, non-C2 Market Maker, JBO, 
etc.) in all equity, multiply-listed index, ETF and ETN penny options 
classes, including AAPL, QQQ, IWM and SLV, that add liquidity are 
provided a rebate of $0.36 per contract and yield fee code PN. The 
Exchange proposes to remove orders in AAPL, QQQ, IWM and SLV from fee 
code PN and, instead, assess existing fee code ``SN'' on non-Market 
Maker, non-Customer orders in AAPL, QQQ, IWM and SLV that add 
liquidity. Fee code SN is currently appended to such orders in SPY and 
assesses a reduced rebate (from that of fee code PN) of $0.20 per 
contract.

[[Page 10143]]

    The Exchange also proposes to add C2 Market Maker orders in AAPL, 
QQQ, IWM and SLV to existing fee code ``SL''. Fee code SL is currently 
appended to C2 Market Maker orders in SPY that add liquidity and are a 
National Best Bid or Offer (``NBBO'') Joiner or NBBO Setter and offers 
a rebate of $0.31 per contract for such orders. Particularly, to 
qualify as a NBBO Joiner, a C2 market-maker order must improve the C2 
Best Bid or Offer (``BBO'') and result in C2 joining an existing NBBO. 
Only the first order received that results in C2 BBO joining the NBBO 
at a new price level will qualify for the enhanced rebate. If C2 is at 
the NBBO, the order will not qualify. Alternatively, C2 Market Makers 
may receive the enhanced rebate if they are a NBBO Setter. To qualify 
as a NBBO Setter and receive the enhanced rebate, a C2 Market Maker 
order must set the NBBO. The Exchange believes assessing fee code SL 
and the corresponding enhanced rebate for C2 Market Makers in AAPL, 
QQQ, IWM and SLV that are NBBO Joiners or Setters will incentivize 
liquidity providers to provide more aggressively priced liquidity in 
AAPL, QQQ, IWM and SLV options.
    The Exchange also proposes to add AAPL, QQQ, IWM and SLV to the 
table in the Fees Schedule that currently sets forth SPY-specific 
pricing. Like with SPY, the Exchange also proposes to clarify that the 
first transaction fee table, which does not apply to RUT, DJX and SPY, 
also does not apply to AAPL, QQQ, IWM and SLV. The Exchange notes that 
transaction fees and rebates that apply to (1) Public Customer orders 
in AAPL, QQQ, IWM and SLV that add liquidity (existing fee code ``PY'') 
(2) C2 Market Maker orders in AAPL, QQQ, IWM and SLV that remove 
liquidity (existing fee code ``PR''), (3) non-Market Maker, non-
Customer orders in AAPL, QQQ, IWM and SLV that remove liquidity 
(existing fee code ``PP), (4) orders in AAPL, QQQ, IWM and SLV that 
trade at the open (existing fee code ``OO'') and (5) resting orders in 
AAPL, QQQ, IWM and SLV that trade with resting complex orders (existing 
fee code ``CA'') are not changing, nor are the associated fee codes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\6\ in general, and 
furthers the objectives of Section 6(b)(4),\7\ 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) \8\ 
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.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
    \8\ 15 U.S.C. 78f(b)(5).
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    As described above, the Exchange 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. In particular, the proposed 
changes to Exchange execution fees and rebates for certain orders in 
AAPL, QQQ, IWM and SLV are intended to attract order flow to the 
Exchange by continuing to offer competitive pricing while also creating 
additional incentives to providing aggressively priced displayed 
liquidity, which the Exchange believes would enhance market quality to 
the benefit of all market participants.
    The Exchange believes its proposed changes are reasonable as they 
are competitive and in line with the Exchange's current pricing for the 
same orders in SPY and with pricing for many of the same products at 
other exchanges.\9\ The Exchange believes that it is reasonable to 
reduce the transaction fee for Public Customer orders in AAPL, QQQ, IWM 
and SLV that remove liquidity because market participants will be 
subject to lower fees for such orders and thus may be encouraged to 
increase retail AAPL, QQQ, IWM and SLV order flow to the Exchange. The 
Exchange believes that it is reasonable to reduce the rebates for both 
C2 Market Maker and non-Market Maker, non-Customer orders in AAPL, QQQ, 
IWM and SLV that add liquidity because such market participants will 
still receive rebates for such orders, albeit at a lower amount, which 
are already in place for such orders in SPY. Additionally, Market 
Makers that are NBBO Joiners or Setters would be eligible to receive 
the same enhanced rebate currently offered for joining or setting an 
NBBO in SPY. The Exchange believes that offering the NBBO Joiner and 
Setter rebate for Market Maker orders in AAPL, QQQ, IWM and SLV is 
reasonable as it is designed to incentivize C2 Market Makers to improve 
the C2 BBO resulting in C2 joining an existing NBBO or setting a new 
NBBO to receive the rebate, ultimately encouraging C2 Market Makers to 
submit more aggressive AAPL, QQQ, IWM and SLV orders that will maintain 
tight spreads, benefitting both Trading Permit Holders and public 
investors.
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    \9\ See e.g., MIAX Pearl Fee Schedule, Section 1 Transaction 
Rebates/Fees, which provides for a fee of $0.50 per contract for 
priority customer IWM and QQQ orders that remove liquidity. See also 
Nasdaq ISE Pricing Schedule, Section 3, Footnote 5, which provides 
for tiered rebates for market-maker SPY orders that add liquidity 
between $0.05-$0.26 per contract.
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    The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to adopt pricing specific to certain orders in 
AAPL, QQQ, IWM and SLV as the Exchange already maintains the same 
pricing for such orders in SPY, as well as similar product-specific 
pricing for certain orders in other products, such as RUT and DJX.\10\ 
Additionally, as noted above, other exchanges similarly provide for 
product-specific pricing.\11\
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    \10\ See Cboe C2 Options Exchange Fees Schedule, Transaction 
Fees.
    \11\ See e.g., MIAX Pearl Fee Schedule, Section 1 Transaction 
Rebates/Fees, which provides for a fee of $0.46 per contract for 
priority customer SPY orders that remove liquidity. See also Nasdaq 
ISE Pricing Schedule, Section 3, Footnote 5, which provides for 
tiered rebates for market maker IWM and QCC orders that add 
liquidity between $0.05 and $0.26 per contract, as well as tired 
rebates for market maker orders in similar, single-name options 
(AMZN, FB, and NVDA) between $0.15 and $0.22.
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    The Exchange also believes that it is equitable and not unfairly 
discriminatory to assess a lower fee for Public Customer orders in 
AAPL, QQQ, IWM and SLV as compared to other market participants because 
customer order flow enhances liquidity on the Exchange for the benefit 
of all market participants. Specifically, customer liquidity benefits 
all market participants by providing more trading opportunities, which 
attracts Market Makers. An increase in the activity of these market 
participants in turn facilitates tighter spreads, which may cause an 
additional corresponding increase in order flow from other market 
participants. Moreover, the options industry has a long history of 
providing preferential pricing to customers, and the Exchange's current 
Fee Schedule currently does so in many places, as do the fees 
structures of multiple other

[[Page 10144]]

exchanges.\12\ The Exchange notes that the proposed fee change will be 
applied equally to all Public Customers.
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    \12\ See Cboe C2 Options Exchange Fees Schedule, Transaction 
Fees. See also BZX Options Fee Schedule, Fee Codes and Associated 
Fees.
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    Additionally, the Exchange believes that it is equitable and not 
unfairly discriminatory to assess higher rebates to Market Makers that 
add liquidity as compared to other market participants, other than 
customers, because Market Makers, unlike other market participants, 
take on a number of obligations, including quoting obligations, which 
other market participants do not have. Further, these rebates are 
intended to incent Market Makers to quote and trade more on C2 Options, 
thereby providing more trading opportunities for all market 
participants. The Exchange notes that the proposed changes to C2 Market 
Maker rebates for AAPL, QQQ, IWM and SLV options will be applied 
equally to all C2 Market Makers. Similarly, the Exchange believes it is 
equitable and not unfairly discriminatory to provide C2 Market Makers 
that are NBBO Joiners or Setters in AAPL, QQQ, IWM and SLV an enhanced 
rebate because such market participants are providing more aggressively 
priced liquidity in AAPL, QQQ, IWM and SLV options. Additionally, 
increased add volume order flow, particularly by liquidity providers, 
contributes to a deeper, more liquid market, which, in turn, provides 
for increased execution opportunities and thus overall enhanced price 
discovery and price improvement opportunities on the Exchange. As such, 
this benefits all market participants by contributing towards a robust 
and well-balanced market ecosystem, offering additional flexibility for 
all investors to enjoy cost savings, supporting the quality of price 
discovery, promoting market transparency and improving investor 
protection. The Exchange believes the proposed change to the rebate for 
non-Market Maker, non-Customer AAPL, QQQ, IWM and SLV orders is also 
equitable and not unfairly discriminatory because it will be applied 
equally to all non-market-makers, non-customers.

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 in SPY to 
a public exchange, thereby promoting market depth, price discovery and 
transparency and enhancing order execution opportunities for all 
Trading Permit Holders. 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.''
    The Exchange believes the proposed rule change does not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
change applies to all similarly situated Trading Permit Holders 
equally. Overall, the proposed change is designed to attract additional 
SPY public customer orders that remove liquidity and SPY market-maker 
and non-market-maker, non-customer orders that add liquidity to the 
Exchange. The Exchange believes that the new C2 market-maker rebate for 
SPY orders that are NBBO Joiners or Setters would incentivize entry on 
the Exchange of more aggressive SPY orders that will maintain tight 
spreads, benefitting both Trading Permit Holders and public investors 
criteria and, as a result, provide for deeper levels of liquidity, 
increasing trading opportunities for other market participants, thus 
signaling further trading activity, ultimately incentivizing more 
overall order flow and improving price transparency on the Exchange.
    Next, the Exchange believes the proposed rule change does not 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As previously 
discussed, the Exchange operates in a highly competitive market. 
Members have numerous alternative venues that they may participate on 
and director their order flow, including 15 other options exchanges and 
off-exchange venues. Additionally, the Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single options exchange has more than 16% of the market 
share. 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 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.'' 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' . . . .''. 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.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \13\ and paragraph (f) of Rule 19b-4 \14\ 
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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f).

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[[Page 10145]]

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-C2-2021-004 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-C2-2021-004. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change.
    Persons submitting comments are cautioned that we do not redact or 
edit personal identifying information from comment submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-C2-2021-004 
and should be submitted on or before March 11, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-03213 Filed 2-17-21; 8:45 am]
BILLING CODE 8011-01-P