[Federal Register Volume 86, Number 238 (Wednesday, December 15, 2021)]
[Notices]
[Pages 71310-71313]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27073]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93744; File No. SR-CBOE-2021-072]


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

December 9, 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 December 1, 2021, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend its Fees Schedule. The text of the proposed rule change is 
provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend its Fees Schedule in connection with 
its strategy order fee cap and the installation fee for the tethering 
of new equipment in connection with Market-Maker handheld terminals for 
indexes, effective December 1, 2021.
    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

[[Page 71311]]

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 15% of 
the market share.\3\ Thus, in such a low-concentrated and highly 
competitive market, no single options 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 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. In response to the competitive environment, the 
Exchange offers specific rates and credits in its fees schedule, like 
that of other options exchanges' fees schedules, which the Exchange 
believes provide incentive to Trading Permit Holders (``TPHs'') to 
increase order flow of certain qualifying orders.
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    \3\ See Cboe Global Markets U.S. Options Market Volume Summary, 
Month-to-Date (November 22, 2021), available at https://www.cboe.com/us/options/market_statistics/.
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    The Exchange proposes to amend footnote 13 of the Fees Schedule in 
connection with its strategy fee cap. Currently, footnote 13 provides 
that Market-Maker, Clearing TPH, JBO participant, broker-dealer and 
non-TPH market-maker transaction fees are capped at $0.00 for all 
merger, short stock interest, reversal, conversion and jelly roll 
strategies executed in open outcry on the same trading day in the same 
option class across all symbols in equities, ETFs and ETNs.\4\ 
Strategies tied to QCC orders are not eligible to receive a strategy 
rebate and strategies defined in footnote 13 \5\ are not eligible for 
an ORS/CORS subsidy. Specifically, the proposed rule change amends 
footnote 13 so that the strategy fee cap also applies to Professional 
transaction fees. The proposed change is designed to incentivize an 
increase in the number of strategy orders executed in a Professional 
capacity in equity, ETF and ETN options (i.e., multiply-listed options) 
in open outcry. Professionals generally provide a greater competitive 
stream of order flow (by definition, more than 390 orders in listed 
options per day on average during a calendar month), thus, applying the 
strategy cap to Professional strategies executed in multiply-listed 
options in open outcry is designed to incentivize increased competitive 
execution and improved pricing opportunities in such options to the 
benefit of all market participants.
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    \4\ A ``merger strategy'' is defined as transactions done to 
achieve a merger arbitrage involving the purchase, sale and exercise 
of options of the same class and expiration date, each executed 
prior to the date on which shareholders of record are required to 
elect their respective form of consideration, i.e., cash or stock. A 
``short stock interest strategy'' is defined as transactions done to 
achieve a short stock interest arbitrage involving the purchase, 
sale and exercise of in-the-money options of the same class. A 
``reversal strategy'' is established by combining a short security 
position with a short put and a long call position that shares the 
same strike and expiration. A ``conversion strategy'' is established 
by combining a long position in the underlying security with a long 
put and a short call position that shares the same strike and 
expiration. A ``jelly roll strategy'' is created by entering into 
two separate positions simultaneously. One position involves buying 
a put and selling a call with the same strike price and expiration. 
The second position involves selling a put and buying a call, with 
the same strike price, but with a different expiration from the 
first position.
    \5\ See id.
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    The Exchange also proposes to waive the installation fee for Cloud9 
handheld tethering services. The Exchange is currently working to 
relocate its trading floor and anticipates its opening at the new 
location in mid-2022. Currently, pursuant to the Facility Fees table of 
the Fees Schedule, the Exchange assesses a $900 fee for the electrician 
services in connection with the installation of the infrastructure 
related to the tethering of Market-Maker handheld terminals for 
indexes. The Exchange plans to implement a new voice communication 
service, Cloud9, for the new trading floor, and all index trading pits 
will support Market-Maker handheld terminals using Cloud9 equipment 
once on the new trading floor. The Exchange wishes to encourage TPHs to 
install the Cloud9 equipment for their handheld terminals on the 
current trading floor prior to the move to the new trading floor in 
order to make the transition to Cloud9 services on the new trading 
floor as seamless as possible. As such, the Exchange proposes to waive 
the installation fee for the tethering of Cloud9 equipment for Market-
Maker handheld terminals for indexes on the Exchange's current trading 
floor. Specifically, the proposed rule change adopts footnote 38, which 
provides that the Exchange will waive the installation fee for 
installation services in connection with the tethering of Cloud9 
equipment for Market-Maker handheld terminals for indexes on the Cboe 
Options trading floor located at 400 S LaSalle Street, and appends 
footnote 38 to the line item in the Facility Fees table for Market-
Maker handheld terminal tethering services for indexes.
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 TPHs 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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    The Exchange believes that proposed rule change to apply the 
strategy order fee cap to Professional transactions in multiply-listed 
options in open outcry is consistent with Section 6(b)(4) of the Act in 
that the proposal is reasonable, equitable and not unfairly 
discriminatory. As noted above, the Exchange operates in highly 
competitive market. The Exchange is only one of several options venues 
to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. The Exchange 
believes that the proposed fees are reasonable, equitable, and not 
unfairly discriminatory in that the Exchange and competing options 
exchanges currently offer reduced fees or credits in connection with 
strategy orders executed in open outcry.\9\ 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 or reduce use of certain categories of products, in 
response to fee changes. Accordingly, competitive

[[Page 71312]]

forces constrain options exchange transaction fees. Stated otherwise, 
changes to exchange transaction fees can have a direct effect on the 
ability of an exchange to compete for order flow. To respond to this 
competitive marketplace, the Exchange has established incentives to 
facilitate the execution of orders via open outcry, which promotes 
price discovery on the public markets. To the extent that these 
incentives succeed, the increased liquidity on the Exchange would 
result in enhanced market quality for all participants.
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    \9\ See e.g., BOX Options Market LLC (``BOX'') Fee Schedule, 
Section II.D, Strategy Qualified Open Outcry ``QOO'' Order Fee Cap 
and Rebate; and NYSE American Options Fee Schedule, Section I(J), 
Strategy Execution Fee Cap.
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    Particularly, the Exchange believes that applying the strategy fee 
cap to Professional transactions in multiply-listed options in open 
outcry is reasonable because it is designed to incentivize 
Professionals to increase their strategy orders in multiply-listed 
options submitted to and executed on the Exchange's trading floor. As 
stated above, Professionals generally provide a greater competitive 
stream of order flow, thus, incentivizing an increase in Professional 
strategies executed in multiply-listed options in open outcry may 
encourage competitive execution and improved pricing opportunities in 
such options to the benefit of all market participants. The Exchange 
offers a hybrid market system and aims to balance incentives for its 
TPHs to continue to contribute to deep liquid markets for investors on 
both its electronic and open outcry platforms. As such, the Exchange 
believes the proposed applications of the strategy fee cap to 
Professional transactions in open outcry is a reasonable means to 
further encourage open outcry liquidity. The Exchange provides other 
opportunities in its Fees Schedule for TPHs, including those that 
submit order flow to the Exchange in a Professional capacity, to 
receive reduced fees or enhanced rebates for orders executed 
electronically.\10\ The Exchange notes that all market participants 
stand to benefit from any increase in volume transacted on the trading 
floor, which promotes market depth, facilitates tighter spreads and 
enhances price discovery, and may lead to a corresponding increase in 
order flow from other market participants.
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    \10\ See e.g., Cboe Options Fees Schedule, ``Volume Incentive 
Program'' and footnote 36, which credits each qualifying TPH 
(including in a Professional capacity) the per contract amount 
resulting from each public customer (``C'' capacity code) order 
transmitted by that TPH which is executed electronically on the 
Exchange (with some exceptions).
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    In addition, the Exchange believes that the proposed rule change to 
waive the installation fees in connection with the tethering of Cloud9 
equipment for Market-Maker handheld terminals is reasonably designed to 
encourage TPHs to install the new Cloud9 equipment for their handheld 
terminals on the current trading floor prior to the move to the new 
trading floor in order to make TPHs' transition to Cloud9 services on 
the new trading floor as seamless as possible.
    The Exchange believes the proposed rule change is equitable and not 
unfairly discriminatory because, as proposed, the strategy fee cap 
applies to all strategy orders executed by Professionals on the trading 
floor equally and because the Exchange believes that facilitating 
strategy orders submitted by Professionals via open outcry encourages 
and supports increased liquidity and execution opportunities in open 
outcry, which functions as an important price-improvement mechanism. 
Also, the proposed strategy fee cap already applies in the same manner 
to other market participants that execute strategies in multiply-listed 
options in open outcry.
    The Exchange also believes that the proposed waiver of the 
installation fees in connection with the installation of Cloud9 
equipment is equitable and not unfairly discriminatory because the 
proposed waiver will apply uniformly to all TPHs that require the 
Exchange to provide installation services for the new Cloud9 equipment 
on the Exchange's current trading floor in anticipation of the 
transition to the new trading floor.

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.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed change regarding the application of the strategy fee cap will 
apply uniformly to all Professionals that execute strategy orders in 
multiply-listed options in open outcry, in the same way the cap applies 
today to such orders submitted by Market-Makers, Clearing TPHs, JBO 
participants, broker-dealers and non-TPH market-makers. By applying the 
strategy fee cap to Professionals, which generally provide a greater 
competitive stream of order flow, the proposed fee change is designed 
to enhance order flow directed to open outcry for execution and 
increase volume transacted on the trading floor, thus promoting market 
depth, facilitating tighter spreads and enhancing price discovery to 
the benefit of all market participants. Additionally, the proposed 
waiver of the installation fees in connection with the installation of 
Cloud9 equipment will apply uniformly to all TPHs that require the 
Exchange to provide installation services for the new Cloud9 equipment 
on the Exchange's current trading floor in anticipation of the 
transition to the Exchange's new trading floor.
    The Exchange also does not believe that the proposed rule change in 
connection with the strategy fee cap will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the Act because, as noted above, competing options 
exchanges, as well as the Exchange, currently have similar fee programs 
in place in connection with strategy orders executed in open 
outcry.\11\ The Exchange also does not believe that the proposed rule 
change in connection with the waiver of the installation fee will 
impose any burden on intermarket competition because it is not 
competitive in nature, but merely relates to installation services 
provided by the Exchange in connection with the relocation of its 
trading floor. Additionally, and as previously discussed, the Exchange 
operates in a highly competitive market. TPHs have numerous alternative 
venues that they may participate on and direct their order flow, 
including 15 other options exchanges. Based on publicly available 
information, no single options exchange has more than 16% of the market 
share.\12\ Therefore, no exchange possesses significant pricing power 
in the execution of option order flow. Indeed, participants can readily 
choose to send their orders to other exchange, and, additionally off-
exchange venues, if they deem fee levels at those other venues to be 
more favorable. Moreover, the Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to

[[Page 71313]]

investors and listed companies.'' \13\ 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'. . . .''.\14\ Accordingly, the Exchange 
does not believe its proposed fee change imposes any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \11\ See supra note 10.
    \12\ See supra note 3.
    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \14\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \15\ and paragraph (f) of Rule 19b-4 \16\ 
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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2021-072 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-2021-072. 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-2021-072 and should be submitted on 
or before January 5, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27073 Filed 12-14-21; 8:45 am]
BILLING CODE 8011-01-P


