[Federal Register Volume 84, Number 157 (Wednesday, August 14, 2019)]
[Notices]
[Pages 40447-40449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17391]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86611; File No. SR-CboeEDGX-2019-051]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Options Regulatory Fee

August 8, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 1, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to 
amend its fee schedule related to the Options Regulatory Fee. 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/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify the fee schedule applicable to the 
Exchange's options platform (``EDGX Options'') to amend the rate of its 
Options Regulatory Fee (``ORF'').\3\ Currently, the Exchange charges an 
ORF in the amount of $0.0001 per contract side. The Exchange proposes 
to increase the amount of ORF from $0.0001 per contract side to $0.0002 
per contract side. The proposed change to ORF should continue to 
balance the Exchange's regulatory expenses against the anticipated 
revenue.
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    \3\ The Exchange initially filed the proposed fee change on 
August 1, 2018 (SR-CboeEDGX-2018-028) for August 1, 2018 
effectiveness. On business date August 9, 2018, the Exchange 
withdrew that filing and submitted this filing. [sic]
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    The ORF is assessed by the Exchange on each Member for options 
transactions cleared by the Member that are cleared by the Options 
Clearing Corporation (OCC) in the customer range, regardless of the 
exchange on which the transaction occurs. In other words, the Exchange 
imposes the ORF on all customer-range transactions cleared by a Member, 
even if the transactions do not take place on the Exchange. The ORF is 
collected by OCC on behalf of the Exchange from the Clearing Member or 
non-Clearing Member that ultimately clears the transaction. With 
respect to linkage transactions, the Exchange reimburses its routing 
broker providing Routing Services for options regulatory fees it incurs 
in connection with the Routing Services it provides.
    Revenue generated from ORF, when combined with all of the 
Exchange's other regulatory fees and fines, is designed to recover a 
material portion of the regulatory costs to the Exchange of the 
supervision and regulation of Member customer options business. 
Regulatory costs include direct regulatory expenses and certain 
indirect expenses for work allocated in support of the regulatory 
function. The direct expenses include in-house and third party service 
provider costs to support the day to day regulatory work such as 
surveillances, investigations and examinations. The indirect expenses 
include support from such areas as human resources, legal, information 
technology and accounting. These indirect expenses are estimated to be 
approximately 37% of EDGX Options' total regulatory costs for 2019. 
Thus, direct expenses are estimated to be approximately 63% of total 
regulatory costs for 2019. In addition, it is EDGX Options' practice 
that revenue generated from ORF not exceed more than 75% of total 
annual regulatory costs.
    The Exchange monitors its regulatory costs and revenues at a 
minimum on a semi-annual basis. If the Exchange determines regulatory 
revenues exceed or are insufficient to cover a material portion of its 
regulatory costs, the Exchange will adjust the ORF by submitting a fee 
change filing to the Commission. The Exchange also notifies Members of 
adjustments to the ORF via regulatory circular.\4\ Based on the 
Exchange's most recent semi-annual review, the Exchange is proposing to 
increase the amount of ORF that will be collected by the Exchange from 
$0.0001 per contract side to $0.0002 per contract side. The proposed 
increase is based on the Exchange's estimated projections for its 
regulatory costs, balanced with recent options volumes. These 
expectations are estimated, preliminary and may change. There can be no 
assurance that the Exchange's final costs for 2019 will not differ 
materially from these expectations and prior practice, nor can the 
Exchange predict with certainty whether options volume will remain at 
the current level going forward; however, the Exchange believes that 
revenue generated from the ORF (as amended), when combined with all of 
the Exchange's other regulatory fees and fines, would cover a

[[Page 40448]]

material portion, but not all, of the Exchange's regulatory costs.\5\
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    \4\ The Exchange provides Members with such notice at least 30 
calendar days prior to the effective date of the change. The 
Exchange notified Members of the proposed rate change for August 1, 
2019 on June 25, 2019. See EDGX Regulatory Circular RG19-020 
``Modification of the Options Regulatory Fee.''
    \5\ The Exchange notes that its regulatory responsibilities with 
respect to Member compliance with options sales practice rules have 
largely been allocated to FINRA under a 17d-2 agreement. The ORF is 
not designed to cover the cost of that options sales practice 
regulation.
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    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\6\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\7\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using its facilities. The Exchange 
notes that it operates in a highly competitive market in which market 
participants can readily direct order flow to competing venues or 
providers of routing services if they deem fee levels to be excessive.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed fee change is reasonable because 
the modest increase is necessary to offset the anticipated regulatory 
costs, and which, in combination with other regulatory fees and fines, 
still is not expected to exceed the Exchange's total regulatory costs. 
The Exchange has designed the ORF to generate revenues that would be 
less than or equal to 75% of the Exchange's regulatory costs, which is 
consistent with the view of the Commission that regulatory fees be used 
for regulatory purposes and not to support the Exchange's business 
side. As discussed above, the Exchange determined to increase ORF after 
its semi-annual review of its regulatory costs and regulatory revenues, 
which includes revenues from ORF and other regulatory fees and fines. 
When taking into account recent options volume, coupled with the 
anticipated regulatory fees, the Exchange believes it's reasonable to 
increase the ORF amount by $0.0001 per contract side.
    Moreover, the Exchange believes the ORF ensures fairness by 
assessing higher fees to those Members that require more Exchange 
regulatory services based on the amount of customer options business 
they conduct. Regulating customer trading activity is much more labor 
intensive and requires greater expenditure of human and technical 
resources than regulating non-customer trading activity, which tends to 
be more automated and less labor-intensive. As a result, the costs 
associated with administering the customer component of the Exchange's 
overall regulatory program are materially higher than the costs 
associated with administering the non-customer component (e.g., Member 
proprietary transactions) of its regulatory program.\8\ The Exchange 
believes the proposed fee change is equitable and not unfairly 
discriminatory in that it is charged to all Members on all their 
transactions that clear in the customer range at the OCC.
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    \8\ If the Exchange changes its method of funding regulation or 
if circumstances otherwise change in the future, the Exchange may 
decide to modify the ORF or assess a separate regulatory fee on 
Member proprietary transactions if the Exchange deems it advisable.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. This proposal does not create 
an unnecessary or inappropriate intra-market burden on competition 
because the ORF applies to all customer activity, thereby raising 
regulatory revenue to offset regulatory expenses. It also supplements 
the regulatory revenue derived from non-customer activity. The Exchange 
notes, however, the proposed change is not designed to address any 
competitive issues. Indeed, this proposal does not create an 
unnecessary or inappropriate inter-market burden on competition because 
it is a regulatory fee that supports regulation in furtherance of the 
purposes of the Act. The Exchange is obligated to ensure that the 
amount of regulatory revenue collected from the ORF, in combination 
with its other regulatory fees and fines, does not exceed regulatory 
costs.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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 \9\ and paragraph (f) of Rule 19b-4 \10\ 
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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-CboeEDGX-2019-051 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 No. SR-CboeEDGX-2019-051. 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

[[Page 40449]]

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 No. SR-CboeEDGX-2019-051, and should 
be submitted on or before September 4, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17391 Filed 8-13-19; 8:45 am]
BILLING CODE 8011-01-P


