[Federal Register Volume 87, Number 190 (Monday, October 3, 2022)]
[Notices]
[Pages 59841-59844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21338]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95934; File No. SR-CBOE-2022-048]


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

September 27, 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 September 20, 2022, 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 update 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.

[[Page 59842]]

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 modify fees for 
certain Customer and Market-Maker orders executed in Cboe Volatility 
Index (``VIX'') options.\3\
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    \3\ The Exchange initially filed the proposed fee changes on 
September 12, 2022 (SR-CBOE-2022-045). On September 20, 2022, the 
Exchange withdrew that filing and submitted this filing.
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    The Exchange first proposes to reduce fees for certain complex 
Customer VIX transactions. By way of background, an ``Index Combo'' is 
a complex order to purchase or sell one or more index option series and 
the offsetting number of Index Combinations defined by the delta.\4\ An 
``Index Combination'' is a purchase (sale) of an index option call and 
sale (purchase) of an index option put with the same underlying index, 
expiration date and strike price.\5\ Index Combinations can trade on 
their own or as part of a tied combo strategy (such as part of an Index 
Combo), where similar to a tied-to-stock option, an option contact 
[sic] is bought or sold in the same package as the two legs making up 
the Index Combination as the synthetic underlying position as a hedge. 
Currently, Customer complex orders, including Index Combo orders, in 
VIX options are assessed the following fees: $0.05 per contract when 
the premium price is between $0.00 and $0.10; $0.17 per contract when 
the premium price is between $0.11 and $0.99; $0.30 per contract when 
the premium price is between $1.00-$1.99; and $0.45 per contract when 
the premium price is equal or greater than $2.00, which orders yield 
fee codes CZ, DA, DB and DC, respectively.\6\ The Exchange proposes to 
waive transaction fees for the Index Combination component (legs) of 
Customer Index Combo orders in VIX. The Index Combination legs will 
yield proposed new fee code ``CI'', and any remaining legs will 
continue to yield the applicable standard Customer complex order fee 
codes for VIX transactions as set forth in the Fees Schedule. The 
Exchange proposes to adopt new Footnote 43 (which is currently 
Reserved), to describe the fee waiver. The Exchange proposes to waive 
fees for Customer Index Combinations to encourage the submission of 
Index Combo orders which provide customers with a means to reduce or 
hedge the risk associated with price movements in the underlying index.
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    \4\ See Cboe Options Rule 5.33, ``Index Combo''.
    \5\ See Cboe Options Rule 5.33(b)(5) (subparagraph (1) of 
definition of ``Index Combo'').
    \6\ Transaction fees for all Customer orders executed in VIX 
during GTH are currently waived through December 31, 2022. See Cboe 
Options Fees Schedule, Footnote 32.
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    The Exchange next proposes to reduce fees for certain Market-Maker 
orders in VIX options that execute against qualifying complex orders. 
Currently, Market-Maker orders in VIX options are assessed $0.05 per 
contract when the premium price is between $0.00 and $0.99 (which 
orders yield fee code MV) and $0.23 per contract when the premium price 
is equal to or above $1.00 (which orders yield fee code MW). The 
Exchange proposes to reduce the transaction fee for certain Market-
Maker VIX orders when the premium is equal to or above $1.00 from $0.23 
to $0.05 per contract. Particularly, the Exchange proposes to assess 
$0.05 per contract for Market-Maker VIX orders where the order (i) is 
executed by the Market-Maker in open outcry, (ii) against a complex 
order that has 3 or more legs, and (iii) the total executed order 
quantity of the contra order is greater than or equal to 5,000 
contracts.\7\ A Market-Maker must be representing themselves on the 
trading floor in order to qualify for the reduced fee. Solicited orders 
where the Market-Maker is represented by a Floor Broker are not 
eligible. In connection with this change the Exchange proposes to adopt 
new fee code ``MI'' which will apply to such transactions \8\ and 
proposes to describe the proposed criteria in new Footnote 43. The 
Exchange believes the proposed reduced fee will encourage Market-Makers 
to participate in additional open-outcry orders in VIX and in 
particular to quote tighter spreads with greater size.
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    \7\ The 5,000 contracts may be summed across multiple legs of 
the contra order. As an example, if a contra complex order has 4 
legs, and each execute for 1,250 contracts against 4 different Floor 
Market-Makers, each Market-Maker will be assessed $0.05 per contract 
for their respective order of 1,250 contracts.
    \8\ The Exchange notes that fee code ``MI'' will also apply to 
qualifying transactions where the VIX Premium is less than $1.00 
(which currently yield Fee Code MV), because the proposed rate 
(i.e., $0.05) is the same as the rate currently assessed to all 
Market-Maker VIX orders where the premium is less than $1.00.
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    The Exchange notes that currently, any post-trade edits to floor 
trades that change the symbol, price, size, or floor trader on any leg 
of the trade will result in single leg fee codes being assigned by the 
billing system to each leg of the trade. Additionally, the Exchange 
notes that orders which contain more than the maximum number of legs 
supported by the Cboe System (currently 16) must be submitted as 
multiple orders. In some instances the submitted child orders on their 
own may not appear to the System as qualifying for fee code CI or MI, 
as applicable, and therefore instead would receive the standard 
applicable fee code notwithstanding otherwise qualifying for the fee 
waiver or reduced fee as part of the original order. For example, if 
the contra order on a child order executes at a quantity less than 
5,000 contracts, the System would not recognize that order as 
qualifying for the reduced fee and the Market-Maker order trading 
against it would not receive fee code MI (nor the corresponding reduced 
fee). Accordingly, the Exchange proposes to also clarify in Footnote 43 
that supporting documentation (e.g., documentation that includes the 
original trade detail) must be submitted to the Exchange within 3 
business days of the transaction in order to receive the proposed fee 
waiver or reduced fee on qualifying orders for which (i) a post-trade 
edit to an order executed in open outcry was made that changed the 
symbol, price, size, and/or floor trader acronym on any leg of the 
transaction; and/or (ii) the original order contained more than the 
maximum number of legs supported by the Cboe System and was 
consequently submitted as multiple orders, where the applicable child 
order by itself does not meet the qualifications for the fee waiver or 
reduced fee. The proposal ensures TPHs have the means to receive the 
proposed fee waiver or reduced fee notwithstanding certain System 
limitations that may impact billing.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\9\ in general, and 
furthers the objectives of Section 6(b)(4),\10\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members 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) \11\ 
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

[[Page 59843]]

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.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change to waive 
transaction fees for the Index Combination legs of a Customer Index 
Combo order executed in VIX options is reasonable, equitable and not 
unfairly discriminatory as Customers would not be subject to fees for 
contracts that are executed as part of an Index Combination and the 
proposed change would apply to all Customers uniformly. The Exchange 
believes the proposal is reasonably designed to encourage Customer 
order flow in VIX options. The Exchange wishes to promote the growth of 
VIX and believes that incentivizing increased Customer Index Combo 
order flow in VIX options would attract additional liquidity to the 
Exchange. The Exchange believes increased Customer order flow 
facilitates increased trading opportunities and attracts Market-Maker 
activity, which facilitates tighter spreads and may ultimately signal 
an additional corresponding increase in order flow from other market 
participants, contributing overall towards a robust and well-balanced 
market ecosystem. The Exchange notes that it similarly waives fees for 
other types of Customer orders in the Fees Schedule.\12\
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    \12\ See Cboe Options Fees Schedule, footnote 8, which waives 
the transaction fee for customer orders in ETF and ETN options 
executed in open outcry or in AIM or as a QCC or as a FLEX Options 
transaction, and footnote 9, which waives transaction fees for 
customer orders that provide or remove liquidity that are 99 
contracts or less in ETF and ETN options.
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    Further, the Exchange believes that it is equitable and not 
unfairly discriminatory to waive fees for certain Customer complex 
orders because, as described above, Customer liquidity benefits all 
market participants by providing more execution opportunities, in turn, 
attracting Market Maker order flow, which ultimately enhances market 
quality on the Exchange to the benefit of all market participants. 
Additionally, the Exchange believes the proposed change is in line with 
other fee programs that are designed to incentivize the sending of 
complex orders, including Index Combo orders, to the Exchange. For 
example, the Exchange provides higher rebates under the Volume 
Incentive Program for complex orders as compared to simple orders.\13\ 
The Exchange also assesses lower fees for complex Customer orders in 
VIX as compared to simple orders in VIX.\14\
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    \13\ See Cboe Options Fees Schedule, Volume Incentive Program.
    \14\ See Cboe Options Fees Schedule, Rate Table--Underlying 
Symbol List A.
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    The Exchange next believes the proposed change to reduce certain 
VIX transaction fees for Market-Makers is reasonable as Market-Makers 
will be paying lower fees for such transactions. The Exchange notes the 
proposed changes are designed to encourage the sending of additional 
large complex VIX orders in open-outcry. Indeed, the Exchange believes 
the proposed reduced fee will encourage Market-Makers to participate in 
additional open-outcry orders in VIX and in particular quote tighter 
spreads with greater size, which may signal additional corresponding 
increase in order flow from other market participants, ultimately 
incentivizing more overall order flow and improving liquidity levels 
and price transparency on the Exchange to the benefit of all market 
participants.
    The Exchange believes the proposed fee change is equitable and not 
unfairly discriminatory because it applies to all Market-Makers 
uniformly. The Exchange believes that it is equitable and not unfairly 
discriminatory to propose lower transaction rates for Market-Makers 
because the Exchange recognizes that these market participants can 
provide key and distinct sources of liquidity. Additionally, as noted 
above, an increase in general market-making activity may provide more 
trading opportunities, in turn, signaling additional corresponding 
increase in order flow from other market participants, and, as a 
result, contributing towards a robust, well-balanced market ecosystem. 
The Exchange notes too that Market-Makers take on a number of 
obligations that other market participants do not have. For example, 
unlike other market participants, Market-Makers take on quoting 
obligations and other market making requirements.
    The Exchange also believes the proposed rule change is equitable 
and not unfairly discriminatory because, as proposed, the proposed fee 
reduction applies to all qualifying VIX orders executed by Market-
Makers on the trading floor equally and because the Exchange believes 
that facilitating VIX orders submitted by Market-Makers via open outcry 
encourages and supports increased liquidity and execution opportunities 
in open outcry, which functions as an important price-improvement 
mechanism for customers. Indeed, 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.

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

    The Exchange believes the proposed amendments to its Fee Schedule 
will not impose any burden on 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 fee changes 
for Customers and Market-Makers will be assessed automatically and 
uniformly to each similarly situated market participant (i.e., all 
qualifying Customer VIX transactions will receive the proposed fee 
waiver and all qualifying Market-Maker VIX transactions will be 
assessed the proposed reduced fee amount). The Exchange notes that 
there is a history in the options markets of providing preferential 
treatment to Customers and Market-Makers. Also, as discussed in the 
statutory basis, the Exchange believes Customer order flow may 
facilitate increased trading opportunities and attract Market-Maker 
activity, which can contribute towards a robust and well-balanced 
market ecosystem. Market-Makers provide key and distinct sources of 
liquidity, and an increase in general market-making activity may 
facilitate tighter spreads, which tends to signal additional 
corresponding increases in order flow from other market participants, 
ultimately incentivizing more overall order flow and improving 
liquidity levels and price transparency on the Exchange to the benefit 
of all market participants. Further as discussed, Market-Makers take on 
a number of obligations that other market participants do not, such as 
quoting obligations and other market-making requirements. The Exchange 
also notes that the proposed fee changes are designed to attract 
additional VIX 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 does not believe that the proposed rule change will 
impose

[[Page 59844]]

any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed rule changes apply only to a product exclusively listed on the 
Exchange. Additionally, 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 (which list products 
that compete with VIX options) and direct 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 17% of 
the market share of executed volume of options trades.\15\ 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 
been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \16\ 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' . . . .''.\17\ 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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    \15\ See Cboe Global Markets, U.S. Options Market Volume Summary 
by Month (September 7, 2022), available at http://markets.cboe.com/us/options/market_share/.
    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \17\ 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 has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \18\ and paragraph (f) of Rule 19b-4 \19\ 
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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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-2022-048 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-2022-048. 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-2022-048 
and should be submitted on or before October 24, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21338 Filed 9-30-22; 8:45 am]
BILLING CODE 8011-01-P


