[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Notices]
[Pages 4163-4166]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00816]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90896; File No. SR-CBOE-2021-001]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend its Fees Schedule With Respect to Expiring Fee Waivers and 
Incentive Programs

January 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 January 4, 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 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 with respect to expiring fee waivers and 
incentive programs. 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 to (1) amend the 
MSCI EAFE Index (``MXEA'') options and MSCI Emerging Markets Index 
(``MXEF'') options Lead Market Maker (``LMM'') Incentive Program, (2) 
amend the Global Trading Hours (``GTH'') S&P 500 Index (``SPX'') 
options and SPX Weekly (``SPXW'') options LMM Incentive Program and (3) 
remove reference to the FTSE 100 Mini Index (``UKXM'') options 
Designated Primary Market-Maker (``DPM'') Incentive Program. The 
Exchange proposes to implement these amendments to its Fees Schedule on 
January 4, 2021.
MXEA and MXEF LMM Incentive Program
    The Exchange proposes to amend its financial program for LMMs 
quoting in Regular Trading Hours (``RTH'') appointed in MXEA and MXEF 
options (i.e., the MSCI LMM Incentive Program). Currently, if the 
appointed LMM in MXEA and MXEF provides continuous electronic quotes 
during RTH that meet or exceed the heightened quoting standards \3\ in 
at least 90% of the MXEA and MXEF series 80% of the time in a given 
month, the LMM will receive a payment for that month in the amount of 
$20,000 per class, per month. That is, an appointed LMM may reach the 
heightened quoting standards for the given percentage of series and 
time, measured across both the MXEF and MXEA series, in a given month 
to receive the $20,000 payment per class per month. Additionally, the 
Exchange notes that an LMM in MSCI options is not currently obligated 
to satisfy the heightened quoting standards described in the table 
above. Rather, an LMM is eligible to receive the rebate if it satisfies 
the heightened quoting standards, which the Exchange believes 
encourages LMMs to provide liquidity during GTH. The Exchange may also 
consider other exceptions to this quoting standard based on 
demonstrated legal or regulatory requirements or other mitigating 
circumstances.
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    \3\ Located in the ``MSCI LMM Incentive Program'' table in the 
Fees Schedule.
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    Specifically, the Exchange proposes to amend certain near-term 
widths contained in the MSCI LMM Incentive Program's heightened quoting 
standards. Currently, for MXEA and MXEF options expiring in the near 
term (8 days to 60 days) the appointed LMM

[[Page 4164]]

must meet a heightened quoting standard of a $1.50 width for 20 size, a 
$3.00 width for 15 size, and a $7.50 width for a 10 size. The proposed 
rule change updates these widths to a $1.20 width for a quote with a 
size of 20 contracts, a $2.50 width for a quote with a size of 15 
contracts, and a $5.00 width for a quote with a size of 10 contracts. 
The Exchange notes that these tighter heightened quoting standards for 
certain near-term sizes are more closely aligned with those heightened 
standards for comparable sizes in near term options under the GTH SPX/
SPXW LMM and GTH VIX/VIXW programs. The Exchange believes that the 
proposed rule change will incentivize LMMs in MSCI options classes to 
meet tighter heightened quoting standards in orders to receive the 
rebate offered under the MSCI LMM Incentive Program. Tighter spreads 
generally signal an increase in activity from other market 
participants, contributing to overall deeper, more liquid markets, 
price discovery and transparency, and a robust market ecosystem to the 
benefit of all market participants.
GTH SPX/SPXW LMM Program
    The Exchange also currently offers a financial incentive program 
for LMMs quoting in GTH appointed in SPX/SPXW (i.e., the GTH SPX/SPXW 
LMM Incentive Program).\4\ Currently, under the GTH SPX/SPXW LMM 
Incentive Program, if an LMM in SPX/SPXW provides continuous electronic 
quotes during GTH that meet or exceed the heightened quoting standards 
\5\ in at least 85% of each of the SPX and SPXW series, 90% of the time 
in a given month, the LMM will receive a rebate for that month in the 
amount of $10,000 for SPX and $10,000 for SPXW. Like with the MSCI LMM 
Incentive Program, a GTH LMM in SPX/SPXW is not currently obligated to 
satisfy the heightened quoting standards described in the table above, 
but instead is eligible to receive the rebate if they satisfy the 
heightened quoting standards above, which are also designed to 
encourage LMMs to provide liquidity during GTH. The Exchange may also 
consider other exceptions to this quoting standard based on 
demonstrated legal or regulatory requirements or other mitigating 
circumstances.
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    \4\ The Exchange notes that an LMM appointed in SPX also holds 
an appointment in SPXW.
    \5\ Located in the ``GTH SPX/SPXW LLM Incentive Program'' table 
in the Fees Schedule.
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    The Exchange proposes to increase the rebate amount received for 
SPX and SPXW to $20,000 for SPX and $30,000 for SPXW, for meeting the 
heighten quoting standards in a given month. The proposed increase in 
the rebate amounts is designed to further encourage GTH LMMs to provide 
significant liquidity in SPX/SPXW options during GTH. The Exchange 
notes that the amounts are comparable to the amount currently offered 
under the MSCI LMM Program ($20,000 per each class) and to the amount 
currently offered under the RTH SPESG LMM Incentive Program, which 
offers a compensation pool of $50,000 that is split among LMMs that 
reach the program's heightened quoting standards (e.g., if two LMMs 
were to meet the heightened quoting standards, they would each receive 
$25,000).
Removal of Expiring UKXM DPM Incentive Program
    The Exchange currently has a compensation plan in place for the 
DPM(s) appointed in UKXM, which expires on December 31, 2020. Pursuant 
to footnote 43 in the Fees Schedule, the DPM appointed for an entire 
month in UKXM will receive a payment of $5,000 per month through 
December 31, 2020. As the program expires December 31, 2020, the 
proposed rule change eliminates footnote 43 and also removes references 
to footnote 43 in Rate Table--Underlying Symbol List A in the Fees 
Schedule.
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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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,\8\ which requires that Exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its Trading Permit Holders and other persons using 
its facilities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(4).
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MXEA and MXEF LLM Incentive Program
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to amend certain widths in the heightened 
quoting standards under the MSCI LMM Incentive Program. The Exchange 
believes it is reasonable to tighten the widths for certain quote sizes 
with near-term expiry in the heightened quoting standards as it is 
reasonably designed to facilitate tighter quotes from LMMs in MXEA and 
MXEF options in order to meet the heightened quoting standards and 
receive the payment offered under the incentive program. Tighter quotes 
tend 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 
protection. As noted, the MSCI LMM Incentive Program, overall, is 
intended to continue incentivizing the LMM(s) in MSCI options classes 
to continue to provide key liquidity and active markets in these 
products. The Exchange also believes that the proposed widths are 
reasonable because they are generally aligned with the corresponding 
heightened standards for comparable sizes in near term options under 
the GTH SPX/SPXW LMM and GTH VIX/VIXW programs.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to amend the near-term quoting widths for select sizes 
within the program's heightened quoting standards, because such widths 
will equally apply to any and all LMMs with appointments in MXEF and 
MXEA options that seeks to meet the heightened quoting standards in 
order to receive the rebate offered under the MSCI LMM Incentive 
Program. The Exchange notes that, if a MSCI LMM does not satisfy the 
heightened quoting standards, then it simply will not receive the 
offered per class payment for that month.
GTH SPX/SPXW Incentive Programs
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to increase the rebate per class received under 
the GTH SPX/SPXW LMM Incentive Program. The Exchange believes that the 
proposed

[[Page 4165]]

rebate amounts are reasonably designed to continue to incentivize an 
appointed LMM to meet the GTH quoting standards for SPX/SPXW, 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. As with the MSCI LMM Incentive 
Program, the GTH SPX/SPXW Incentive Program is intended, overall, to 
incentivize LMMs to continue to provide key liquidity and active 
markets in these products. The Exchange further believes that the 
proposed rule change to increase the rebate received for SPX ($20,000) 
and SPXW ($30,000) is reasonable because it is comparable to the 
rebates offered for products under similar LMM incentive programs in 
the Fees Schedule. For example, the MSCI LMM Program currently offers 
$20,000 per each class in which the heightened quoting standards are 
met in a given month and the RTH SPESG LMM Incentive Program offers a 
compensation pool of $50,000 that is split among LMMs that reach that 
program's heightened quoting standards in a given month (e.g., if two 
LMMs were to meet the heightened quoting standards, they would each 
receive $25,000).
    The Exchange believes the proposed rebates are equitable and not 
unfairly discriminatory because they equally apply to any TPH that is 
appointed as a GTH SPX/SPXW LMM. Additionally, if a GTH LMM does not 
satisfy the heightened quoting standard in SPX/SPXW for any given 
month, then it simply will not receive the offered payment for that 
month.
    Regarding both the MSCI and SPX/SPXW LMM incentive programs 
generally, the Exchange believes it is equitable and not unfairly 
discriminatory to continue to offer these financial incentives, 
including as amended, to GTH SPX/SPXW LMMs and MSCI LMMs, because it 
benefits all market participants trading SPX/SPXW during GTH and 
trading MXEF and MXEA during RTH.\9\ These incentive programs encourage 
the LMMs to satisfy the heightened quoting standards, which may 
increase liquidity and provide more trading opportunities and tighter 
spreads. Indeed, the Exchange notes that LMMs serve a crucial role in 
providing quotes and the opportunity for market participants to trade 
SPX/SPXW and MSCI options, which can lead to increased volume, 
providing for robust markets. The Exchange ultimately wishes to 
sufficiently incentive LMMs to provide liquid and active markets in 
SPX/SPXW during GTH and MXEF and MXEA during RTH to encourage 
liquidity. The Exchange believes that these programs, as amended, will 
continue to encourage increased quoting to add liquidity in SPX/SPXW 
and in MXEF and MXEA, thereby protecting investors and the public 
interest. The Exchange also notes that an LMM may have added costs each 
month that it needs to undertake in order to satisfy that heightened 
quoting standards (e.g., having to purchase additional logical 
connectivity).
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    \9\ The Exchange notes that trading in MXEF and MXEA options is 
not currently available during GTH.
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Removal of Expiring UKXM DPM Incentive Program
    The Exchange believes the proposed rule change to remove references 
to an expiring incentive program is reasonable equitable and not 
unfairly discriminatory. The Exchange believes it is reasonable to 
remove the UKXM DPM incentive program as it will expire on December 31, 
2020. The proposed removal of the UKXM DPM incentive program is not 
unfairly discriminatory and is equitable because it will no longer be 
applicable, as scheduled, to any DPMs in UKXM.

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.
    The Exchange believes the proposed rule change does impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
changes to existing incentive programs will apply to all LMMs appointed 
to the applicable classes (i.e. MXEF, MXEA, SPX, and SPXW) in a uniform 
manner. To the extent these LMMs receive a benefit that other market 
participants do not, as stated, LMMs have different obligations and are 
held to different standards. For example, LMMs 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. The Exchange also 
notes that an LMM may have added costs each month that it needs to 
undertake in order to satisfy that heightened quoting standards (e.g., 
having to purchase additional logical connectivity). The Exchange also 
notes that the incentive programs are designed to attract additional 
order flow 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 notes the proposed change to remove footnote 43 is not 
intended to address any competitive issue, but rather to eliminate an 
expiring incentive program that the Exchange does not intend to extend.
    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. The proposed changes in 
connection with the incentive programs only affect trading on Cboe 
Options, as the incentive programs apply to transactions in products 
exclusively listed on Cboe Options. Additionally, as noted above, the 
incentive programs are designed to attract additional order flow 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 notes it 
operates in a highly competitive market. In addition to Cboe Options, 
TPHs have numerous alternative venues that they may participate on and 
director their order flow, including 15 other options exchanges, as 
well as off-exchange venues, where competitive products are available 
for trading. Based on publicly available information, no single options 
exchange has more than 15% of the market share of executed volume of 
options trades.\10\ Therefore, no exchange possesses significant 
pricing power in the execution of option order flow. Moreover, the 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. Specifically, in Regulation NMS, the 
Commission highlighted the importance of market forces in determining 
prices and SRO revenues and, also, recognized that current regulation 
of the market system ``has

[[Page 4166]]

been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \11\ 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'. . .''.\12\ Accordingly, the Exchange does not believe its 
proposed changes to the incentive programs impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \10\ See Cboe Global Markets, U.S. Options Market Volume Summary 
by Month (December 28, 2020), available at http://markets.cboe.com/us/options/market_share/.
    \11\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \12\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC 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 \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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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-2021-001 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-2021-001. 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-CBOE-2021-001 
and should be submitted on or before February 5, 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. 2021-00816 Filed 1-14-21; 8:45 am]
BILLING CODE 8011-01-P


