[Federal Register Volume 84, Number 205 (Wednesday, October 23, 2019)]
[Notices]
[Pages 56873-56877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23057]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87338; File No. SR-CBOE-2019-094]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
its Fees Schedule To Modify Certain Processes and Requirements Relating 
to the Submission of Rebate Requests

October 17, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 4, 2019, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 to modify certain processes and requirements 
relating to the submission of rebate requests. 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

[[Page 56874]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe 
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX 
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges''). Cboe Options intends to migrate its trading platform to 
the same system used by the Cboe Affiliated Exchanges, and also migrate 
its current billing system to a new billing system, on October 7, 2019 
(the ``migration''). In connection with the migration, the Exchange 
proposes to modify certain processes and requirements relating to the 
submission of rebate requests, effective October 7, 2019.
    Particularly, the Exchange proposes to modify the process relating 
to Frequent Trader ID updates and eliminate the ability for TPHs to 
submit certain forms and written requests relating to: (i) Strategy 
order rebates, (ii) customer and non-customer large trade discounts and 
(iii) compression order rebates. Instead, TPHs will be required to mark 
inbound orders appropriately or make same-day changes in the Clearing 
Editor.
    The Exchange first proposes to amend its fee schedule with respect 
to the Frequent Trader Program. By way of background, through the 
Frequent Trader Program, the Exchange offers transaction fee rebates to 
Customers and Professional Customers and Voluntary Professionals 
(origin codes ``C'' and ``W'', respectively) (collectively 
``Customers'') that meet certain volume thresholds in VIX, SPX 
(including SPXW) and RUT options, provided the Customer registers for 
the program. Once registered, the Customer is provided a unique 
Frequent Trader identification number (``FTID'') that can be affixed to 
each of its orders. The FTID allows the Exchange to identify and 
aggregate all electronic and manual trades from that Customer for 
purposes of determining whether the Customer meets any of the various 
volume thresholds. The Customer has to provide its FTID to the Trading 
Permit Holder (``TPH'') submitting that Customer's order to the 
Exchange (``executing agent'' or ``executing TPH'') and that executing 
TPH would have to enter the Customer's FTID on each of that Customer's 
orders.\5\
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    \5\ The Exchange notes that it is the responsibility of the 
Customer to request that the executing TPH affix its FTID to its 
order(s), and that it is voluntary for the executing TPH to do so.
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    The Exchange notes that there are instances however, in which a 
Customer's FTID was not or could not be, affixed to an order. For 
example, an executing TPH may receive an order with multiple contra 
parties, including parties that are also customers with their own 
unique FTIDs. The executing TPH's front end system however, may only 
allow it to input only one FTID on the order. Thus the other Customers 
to the trade would not have their FTID represented at the time of 
submission. Additionally, it is possible that an executing TPH 
inadvertently enters an incorrect FTID number on an order. Accordingly, 
the Exchange currently allows TPHs to add or modify FTID information on 
post-trade records using a Cboe Trade Match (CTM) terminal for changes 
on the trade date or submit such FTID information electronically to the 
Exchange in a form and manner prescribed by the Exchange.\6\ Such 
electronic submission must be received no later than 6:00 p.m. CT on 
the trade date. The Exchange currently allows, in extenuating 
circumstances as determined by the Exchange, the deadline to be 
extended until 6:00 p.m. CT on the business day following the trade 
date.
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    \6\ The Exchange has issued an Exchange Trade Notice providing 
the details as to how TPHs may submit such information to the 
Exchange and any corresponding deadline. See Cboe Options Trade 
Notice, ``Frequent Trader ID Additions and Corrections--Change in 
Procedures'', Reference ID C2019060700, which sets forth the file 
format, information required and corresponding deadlines. To the 
extent the Exchange amends the process or deadline in the future, 
the Exchange will similarly issue Exchange a new Trade Notice 
describing the changes.
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    The Exchange notes that post-migration, in connection with the 
transition of the Exchange's billing system, the Exchange will no 
longer be able to apply rebates to any trades that were not marked or 
updated on the trade date. As such, the Exchange proposes to eliminate 
the ability for TPHs to submit electronically updated FTID information 
on the following trade date. Instead, the Exchange proposes to provide 
that an executing TPH may add or modify FTID information on post-trade 
records using the Clearing Editor \7\ for changes on the trade date or 
electronically submit such FTID information to the Exchange in a form 
and manner prescribed by the Exchange no later than 4:29 p.m. CT, or by 
such time that the Exchange submits its final trade submission to the 
Options Clearing Corporation (``OCC'') if later than 4:29 p.m. CT, on 
the trade date.\8\ The Exchange believes that the vast majority of TPHs 
shouldn't need more than the trade date to submit FTID information 
electronically as it is not an overly burdensome process. The Exchange 
also notes that the Frequent Trader Program was established over three 
years ago and TPHs therefore should be familiar with the program and 
its requirements and more proficient in ensuring FTID information is 
submitted in a timely manner. Moreover, TPHs still have the option of 
affixing FTIDs on the orders or may add or modify FTID information on 
post-trade records on the trade date via the Clearing Editor.
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    \7\ The Exchange notes that post-migration, the Cboe Trade Match 
(CTM) system will be replaced with the Clearing Editor, which is 
functionally equivalent to current CTM. As such, the Exchange 
proposes to replace the reference to Cboe Trade Match (``CTM'') with 
``Clearing Editor'' in the Frequent Trader Program Notes section.
    \8\ Effective October 7, 2019, FTIDs can be added or modified 
using the Clearing Edit Service in the Secure Web API (``Clearing 
Editor API'') on the trading day the trade occurred. See Cboe 
Options Trade Notice, ``Frequent Trader ID Additions and 
Corrections--Change in Procedures'', Reference ID C2019060700, which 
sets forth the manner in which TPHs may update FTID information. The 
Exchange notes that the default cutoff time to make changes via the 
Clearing Editor tool or API is 4:29 p.m. CT, which is the time the 
Exchange submits its final trade submission to the OCC, which 
triggers OCC's end of day processing and settlement. However, there 
may be instances in which the Exchange must delay its final trade 
submission and the Clearing Editor would in those instances not 
preclude changes to be made or submitted.
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    Next, the Exchange proposes to amend Footnote 13 of the Fees 
Schedule to eliminate the requirement to submit a rebate request with 
supporting documentation in order to qualify for strategy order fee 
caps. By way of

[[Page 56875]]

background, Market-Maker, Clearing TPH, Joint-Back Office (``JBO''), 
broker-dealer and non-TPH market-maker transaction fees are capped at 
(1) $1,000 for all (i) merger strategies and (ii) short stock interest 
strategies and at (2) $700 for all reversals, conversions and jelly 
roll strategies executed on the same trading day in the same option 
class for options on equities, ETFs and ETNs. Such transaction fees for 
these strategies are further capped at $25,000 per month per initiating 
TPH or TPH organization (excluding Clearing TPHs). Currently, to 
qualify transactions for the cap, a rebate request with supporting 
documentation must be submitted to the Exchange within 3 business days 
of the transactions. The Exchange notes that post-migration, it will no 
longer support the intake of various rebate request forms. Accordingly, 
the Exchange proposes to modify current Footnote 13 to eliminate the 
requirement that TPHs must submit a written request with supporting 
documentation in order to qualify for the fee caps. The Exchange notes 
that upon migration, TPHs will be able to mark their strategy orders as 
strategy orders and the fee caps will therefore automatically be 
processed without requiring any supporting documentation. As such, 
rebate forms are no longer necessary to process the above-mentioned fee 
caps. Additionally, the Exchange has only received a handful of these 
rebate requests over the past year and therefore believes the impact of 
the proposed change to be de minimis.
    Next, the Exchange proposes to amend Footnotes 27 and 47 which 
govern the Customer Large Trade Discount Program and a non-customer 
Large Trade Discount Program, respectively. By way of background, the 
Customer Large Trade Discount Program caps fees for customer orders of 
a certain size in VIX, SPX/SPXW, XSP, other index options and ETF and 
ETN options. The Large Trade Discount Program similarly caps fees for 
non-customer orders of a certain size in VIX options. Both programs 
provide that qualification of an order for the fee caps are based on 
the trade date and order ID on each order. More specifically, to 
qualify for the discount, the entire order quantity must be tied to a 
single order ID (unless the order is a complex order with a number of 
legs that exceeds system limitations) either within the Cboe Command 
system or PULSe or in the front end system used to enter and/or 
transmit the order (provided the Exchange is granted access to 
effectively audit such front end system) (the order must be entered in 
its entirety on one system so that the Exchange can clearly identify 
the total size of the order). Currently, for an order entered via PULSe 
or another front end system, or a complex order with multiple order 
IDs, a large trade discount request must be submitted to the Exchange 
within 3 business days of the transactions and must identify all 
necessary information, including the order ID and related trade 
details. The Exchange proposes to eliminate the ability to submit a 
form for orders entered via PULSe or another front end system or a 
complex order with multiple order IDs. Particularly, the Exchange notes 
that TPHs should be able to identify such orders on each order thus 
eliminating the need to support a rebate request and documentation 
post-trade. Additionally, the Exchange notes that it has received less 
than a handful of forms over the past year. As such, the Exchange 
believes the impact of the proposed change to be de minimis.
    Lastly, the Exchange proposes to amend Footnote 41 to eliminate the 
requirement that TPHs must submit a rebate request to receive rebates 
for compression trades. By way of background, the Exchange rebates 
transaction fees, including the Index License Surcharge, for SPX and 
SPXW transactions if the transaction: (i) Involves a complex order with 
at least five (5) different series in S&P 500 Index (SPX) options, SPX 
Weeklys (SPXW) options, (ii) is a closing-only transaction or, if the 
transaction involves a Firm order (origin code ``F''), is an opening 
transaction executed to facilitate a compression of option positions 
for a market-maker or joint-back office (``JBO'') account executed as a 
cross pursuant to and in accordance with Cboe Options Rule 6.74(b) or 
(d); (iii) is a position with a required capital charge equal to the 
minimum capital charge under Option Clearing Corporation's (``OCC'') 
rules RBH Calculator or is a position comprised of option series with a 
delta of ten (10) or less and (iv) is entered on any of the final three 
(3) trading days of any calendar month. The Exchange also rebates 
transaction fees, including the Index License Surcharge, for closing 
transactions involving SPX and SPXW compression-list positions executed 
in a compression forum. Currently, to receive either rebate, a rebate 
request with supporting documentation must be submitted to the Exchange 
within 3 business days of the transactions. The Exchange notes that 
upon migration, TPHs will be able to mark their orders to identify them 
as eligible for the compression rebates which would enable the Exchange 
to validate and process the rebates without the submission of a request 
and supporting documentation. As such, the Exchange believes the need 
to submit rebate requests and supporting documentation to receive 
compression rebates are no longer necessary.
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 the 
Section 6(b)(5) \11\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    First, the Exchange notes that eliminating the ability to submit 
FTID information after the trade date is reasonable as the Exchange 
will no longer be able to apply rebates to any trades that were not 
marked or updated on the trade date. The Exchange further believes that 
all TPHs should be able to prepare and submit FTID information 
electronically to the Exchange on the trade date. The proposed change 
continues to ensure timely processing and finality. Additionally, it 
has been approximately 3 years since the original FT Form was adopted 
and as such, TPHs should be familiar with the Frequent Trader Program 
and should have systems and procedures in place to process to provide 
the required FTID information on the trade date. The Exchange also 
notes that the ability to provide FTID information electronically to 
the Exchange post-trade is merely an additional means to ensure FTID 
information is relayed to the Exchange. TPHs still have the option of 
affixing FTIDs on the orders or may add or

[[Page 56876]]

modify FTID information on post-trade records on the trade date via the 
Clearing Editor (formerly the CTM terminal). As such, the Exchange 
believes notwithstanding the proposed changes, that TPHs still are 
provided a variety of means to ensure FTID information is relayed to 
the Exchange in a timely, efficient manner, thereby removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system, and protecting investors and the public 
interest.
    The Exchange also believes eliminating the requirement to submit a 
written rebate request with supporting documentation in order to (i) 
qualify for strategy orders fee caps, (ii) to receive the discounts 
under the customer and non-customer Large Trade Discount programs for 
certain orders and (iii) to qualify for compression rebates is 
reasonable as TPHs are still eligible to receive all available caps, 
discounts and rebates. Specifically, post-migration, TPHs must merely 
mark inbound orders appropriately by populating the appropriate FIX or 
BOE field or make same-day changes in the Clearing Editor, in lieu of 
submitting documentation post-trade. The proposed changes also 
streamline and simplify the Exchange's billing processes, as the system 
will be able to identify marked orders and apply fee caps, rebates and 
discounts without TPHs having to submit, and the Exchange having to 
manually review, additional documentation. Lastly, the Exchange notes 
the proposed rule change is not intended to have a significant impact 
or address any competitive issues. Rather it is precipitated by the 
transition of its billing system to a new system that is automated and 
will not process post-trade rebate requests.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed changes 
applies uniformly to all TPHs and still provide for TPHs an opportunity 
to receive the above described caps, rebates, and discounts 
notwithstanding the elimination of various form submissions. The 
Exchange believes that the proposed rule change will not cause an 
unnecessary burden on intermarket competition because it only applies 
to trading on Cboe Options. To the extent that the proposed changes 
make Cboe Options a more attractive marketplace for market participants 
at other exchanges, such market participants are welcome to become Cboe 
Options market participants.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has requested that the Commission waive the five-day 
pre-filing requirement. The Commission hereby grants the request.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \14\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange asserts that waiver of the delay will allow the Exchange to 
implement the proposed changes on October 7, 2019, the day the 
Exchange's billing system is migrated to a new system. In addition, 
CBOE notes that the Exchange provided TPHs notice of the proposed 
changes and implementation on September 4, 2019.\16\ The Commission 
believes that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. The Commission 
hereby waives the operative delay and designates the proposed rule 
change operative upon filing.\17\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ See supra note 6.
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(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-2019-094 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2019-094. 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

[[Page 56877]]

business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
CBOE-2019-094 and should be submitted on or before November 13, 2019.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23057 Filed 10-22-19; 8:45 am]
 BILLING CODE 8011-01-P


