[Federal Register Volume 87, Number 119 (Wednesday, June 22, 2022)]
[Notices]
[Pages 37368-37371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13274]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95107; File No. SR-C2-2022-012]


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

June 15, 2022.
    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 June 1, 2022, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (``C2'' or the ``Exchange'') is filing with 
the Securities and Exchange Commission (the ``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://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 fee schedule in connection with 
its discount program for Bulk BOE Logical Ports, effective June 1, 
2022.
    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

[[Page 37369]]

16 options venues to which market participants may direct their order 
flow. Based on publicly available information, no single options 
exchange has more than approximately 16% of the market share and 
currently the Exchange represents approximately 4% of the market 
share.\3\ 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.
---------------------------------------------------------------------------

    \3\ See Cboe Global Markets U.S. Options Market Volume Summary 
by Month (May 24, 2022), available at https://markets.cboe.com/us/options/market_statistics/.
---------------------------------------------------------------------------

    The Exchange currently offers BOE Bulk Logical Ports (``BOE Bulk 
Ports''), which provide users with the ability to submit single and 
bulk order messages to enter, modify, or cancel orders designated as 
Post Only Orders with a Time-in-Force of Day or GTD with an expiration 
time on that trading day. Bulk BOE Ports are assessed $1,500 per port, 
per month for the first five Bulk BOE Ports and thereafter assessed 
$2,500 per port, per month for each additional Bulk BOE Port. Each Bulk 
BOE Port also incurs the logical port fee indicated in the table above 
when used to enter up to 30,000,000 orders per trading day per logical 
port as measured on average in a single month. Each incremental usage 
of up to 30,000,000 orders per day per Bulk BOE Port will incur an 
additional logical port fee of $2,500 per month (``incremental usage 
fees''). The Exchange also offers a discount program for Bulk BOE Ports 
which provides an opportunity for Market-Makers to obtain credits on 
their monthly Bulk BOE Port fees (excluding incremental usage fees).\4\ 
Currently, under the Bulk BOE Ports discount program, Market-Makers 
will receive a 30% discount on its monthly Bulk BOE Port fees 
(excluding incremental usage fees) where a Market-Maker has (1) a Step-
Up ADAV \5\ equal to or greater than 0.025% of average OCV \6\ from 
February 2021 and (2) a ``Make Rate'' equal to or greater than 85%.\7\
---------------------------------------------------------------------------

    \4\ While BOE Bulk Ports are available to all market 
participants, they are used primarily by Market Makers or firms that 
conduct similar business activity.
    \5\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added per day. ADAV is calculated on a monthly 
basis, excluding contracts added or removed on any day that the 
Exchange's system experiences a disruption that lasts for more than 
60 minutes during regular trading hours (``Exchange System 
Disruption'') and on any day with a scheduled early market close.
    \6\ ``OCV'' (or ``OCC Customer Volume'' means, the total equity 
and ETF options volume that clears in the Customer range at the 
Options Clearing Corporation (``OCC'') for the month for which the 
fees apply, excluding volume on any day that the Exchange 
experiences an Exchange System Disruption and on any day with a 
scheduled early market close.
    \7\ The ``Make Rate'' shall be derived from a Market-Maker's 
volume the previous month in all symbols using the following 
formula: (i) the Market-Maker's total simple add volume divided by 
(ii) the Market-Maker's total simple volume. Trades on teh open and 
complex orders will be excluded from the Make Rate calculation. The 
Exchange will aggregate the trading activity of separate Market-
Maker firms for purposes of the discount tier and make rate 
calculation if there is at least 75% common ownership between the 
firms as reflected on each firm's Form BD, Schedule A.
---------------------------------------------------------------------------

    The Exchange proposes to amend the current criteria under the Bulk 
BOE Port discount program and add another tier of criteria the discount 
program. The proposed rule change amends the current criteria in prong 
one by slightly increasing the Step-Up ADAV over the average OCV from 
0.025% to 0.03%, changing the base ``step-up'' month from February 2021 
to June 2021, and increasing the percentage of ``Make Rate'' from 85% 
to 97%. The 30% discount remains the same. The proposed rule change 
also adopts a new tier of criteria under the Bulk BOE Port discount 
program, which provides that a Market-Maker will receive a 40% discount 
on its monthly Bulk BOE Logical Port fees, excluding incremental usage 
fees, where the Market-Maker (1) has a Step-Up ADAV equal to or greater 
than 0.05% of OCV from June 2021 and (2) has a ``Make Rate'' equal to 
or greater than 97%.
    The proposed Bulk BOE Port discount program, currently and as 
amended, is designed to attract liquidity from traditional Market-
Makers and encourage Market-Makers to grow their volume. The discount 
program mitigates costs incurred by traditional Market-Makers that 
focus on adding liquidity to the Exchange (as opposed to those that 
provide and take, or just take). The proposed increase in percentage of 
ADAV over OCV (0.03%) to receive the current 30% discount on monthly 
Bulk BOE Port fees in the existing tier and proposed new tier offering 
a 40% discount for reaching an even higher percentage of ADAV over OCV 
(0.05%) will encourage Market Makers to strive to provide increased 
levels of liquidity. The proposed increase in the percentage of ``Make 
Rate'' to 97%, and addition of the same ``Make Rate'' prong of criteria 
in the proposed new tier, is intended to encourage Market Makers with 
significant Make Rates to continue to participate on the Exchange and 
add liquidity, or otherwise increase their Make Rates by streaming more 
quotes. Increased liquidity and enhanced quote streaming from Market 
Makers generally provide greater trading opportunities and tighter 
spreads, which tends to signal additional corresponding increase in 
order flow from other market participants. This, in turn, 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.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\8\ in general, and 
furthers the objectives of Section 6(b)(4),\9\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Trading Permit Holders 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) \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, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change to amend the Bulk 
BOE Ports discount program is reasonable, equitable and not unfairly 
discriminatory. The proposed rule changes to increase the percentage of 
ADAV over OCV (0.03%) to receive the current 30% discount on monthly 
Bulk BOE Port fees in the existing tier and to adopt a new tier 
offering a 40%

[[Page 37370]]

discount for reaching an even higher percentage of ADAV over OCV 
(0.05%) are reasonably designed to encourage Market Makers to strive to 
provide increased levels of liquidity. Similarly, the proposed rule 
changes to increase the percentage of ``Make Rate'' to 97% and to add 
the same ``Make Rate'' prong of criteria in the proposed new tier are 
reasonably designed to encourage Market Makers with significant Make 
Rates to continue to participate on the Exchange and add liquidity, or 
otherwise increase their Make Rates by streaming more quotes. As 
described above, increased liquidity and enhanced quote streaming from 
Market Makers generally provide greater trading opportunities and 
tighter spreads, signaling an additional corresponding increase in 
order flow from other market participants. This potentially deepens the 
Exchange's liquidity pool, provides increased execution incentives and 
opportunities, offers additional flexibility for all investors to enjoy 
cost savings, supports the quality of price discovery, promotes market 
transparency and improves investor protection. The Exchange believes 
the proposed discount of 40% included in the proposed new tier is 
reasonable in that it is an incremental increase over the discount rate 
of 30% offered in the existing tier, which is reasonably commensurate 
with the incremental increase in percentage of ADAV over OCV that a 
Market Maker must achieve to receive the proposed 40% discount as 
compared to the percentage of ADAV over OCV that a Market Maker must 
achieve to receive the existing 30% discount. The Exchange notes that 
the proposed discount under the proposed new tier is in line with the 
discount offered to Market Makers on its affiliate exchange, Cboe 
Exchange, Inc. (``Cboe Options'').\11\ Additionally, the Exchange 
believes it is reasonable to update the baseline month to a month that 
is closer in time, therefore a more relevant measure for ``step-up'' 
volume.
---------------------------------------------------------------------------

    \11\ See Cboe Options Fees Schedule, Market-Maker Access Credit.
---------------------------------------------------------------------------

    The proposed rule change to amend the Bulk BOE Port discount 
program, which is offered only to Market Makers, is equitable and not 
unfairly discriminatory because Market Makers are valuable market 
participants that provide liquidity in the marketplace and incur costs 
that other market participants do not incur. For example, Market Makers 
have a number of obligations, including quoting obligations and fees 
associated with appointments that other market participants do not 
have. The Exchange also believes that the discount program, currently 
and as amended, provides an incentive for Market Makers to provide more 
liquidity to the Exchange. Generally, greater liquidity benefits all 
market participants by providing more trading opportunities and tighter 
spreads. The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to provide credits to those Market Makers that 
primarily provide and post liquidity to the Exchange, as the Exchange 
wants to continue to encourage Market Makers with significant Make 
Rates to continue to participate on the Exchange and add liquidity. 
Moreover, the Exchange notes that Market Makers with high Make Rate 
percentages generally require higher amounts of capacity than other 
Market Makers. Particularly, Market Makers with high Make Rates are 
generally streaming significantly more quotes than those with lower 
Make Rates. As such, Market Makers with high Make Rates may incur more 
costs than other Market Makers as they may need to purchase multiple 
Bulk BOE Ports in order to accommodate their capacity needs. The 
Exchange believes the proposed credits for Bulk BOE Ports encourages 
Market Makers to continue to provide liquidity for the Exchange, 
notwithstanding the costs incurred by purchasing multiple ports. 
Particularly, the discount program, currently and as proposed, is 
intended to mitigate the costs incurred by traditional Market Makers 
that focus on adding liquidity to the Exchange (as opposed to those 
that provide and take, or just take). Additionally, while the Exchange 
has no way of predicting with certainty how many and which Market 
Makers will satisfy the proposed criteria to receive the discount, the 
Exchange anticipates at least two Market Makers will satisfy the 
criteria across the two tiers to receive the applicable discounts. The 
Exchange does not believe the proposed discount will adversely impact 
any Market Maker's pricing. Rather, should a Market Maker not meet the 
proposed criteria, the Market Maker will merely not receive the 
proposed discount.

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 the proposed rule change to amend the Bulk 
BOE Port discount program offered to Market Makers will impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because Market Makers are 
valuable market participants that provide liquidity in the marketplace 
and incur costs that other market participants do not incur. As 
described above, Market Makers have a number of obligations, including 
quoting obligations and fees associated with appointments that other 
market participants do not have. The Exchange does not believe the 
proposed rule change does will 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. Trading Permit Holders 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

[[Page 37371]]

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 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 \12\ and paragraph (f) of Rule 19b-4 \13\ 
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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-C2-2022-012 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-C2-2022-012. 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-C2-2022-012 and should be submitted on 
or before July 13, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13274 Filed 6-21-22; 8:45 am]
BILLING CODE 8011-01-P


