[Federal Register Volume 87, Number 237 (Monday, December 12, 2022)]
[Notices]
[Pages 76091-76094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26864]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96450; File No. SR-CBOE-2022-060]


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

December 6, 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 November 23, 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 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.

[[Page 76092]]

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 modify the fee 
for the SPX (and SPXW) Floor Market-Maker Tier Appointment Fee.\3\
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    \3\ The Exchange initially filed the proposed fee change, among 
other changes, on June 1, 2022 (SR-CBOE-2022-026). On June 10, 2022, 
the Exchange withdrew that filing and submitted SR-CBOE-2022-029. On 
August 5, 2022, the Exchange withdrew that filing and submitted SR-
CBOE-2022-042. On September 26, 2022, the Exchange withdrew that 
filing and submitted SR-CBOE-2022-050 to address the proposed fee 
change relating to the SPX/SPXW Floor Market-Maker Tier Appointment 
Fee. On November 23, 2022, the Exchange withdrew that filing and 
submitted this filing.
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    By way of background, Exchange Rule 5.50(g)(2) provides that the 
Exchange may establish one or more types of tier appointments and 
Exchange Rule 5.50(g)(2)(B) provides such tier appointments are subject 
to such fees and charges the Exchange may establish. In 2010, the 
Exchange established the SPX Tier Appointment and adopted an initial 
fee of $3,000 per Market-Maker trading permit, per month.\4\ The SPX 
(and SPXW) Tier Appointment fee for Floor Market-Makers currently 
applies to any Market-Maker that executes any contracts in SPX and/or 
SPXW on the trading floor.\5\ The Exchange now seeks to increase the 
fee for the SPX/SPXW Floor Market-Maker Tier Appointment from $3,000 
per Market-Maker Floor Trading Permit to $5,000 per Market-Maker Floor 
Trading Permit.
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    \4\ See Securities Exchange Act Release No. 62386 (June 25, 
2010), 75 FR 38566 (July 2, 2010) (SR-CBOE-2010-060).
    \5\ The Exchange notes that the fee is not assessed to a Market-
Maker Floor Permit Holder who only executes SPX (including SPXW) 
options transactions as part of multi-class broad-based index spread 
transactions. See Cboe Options Fees Schedule, Market-Maker Tier 
Appointment Fees, Notes.
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    In connection with the proposed change, the Exchange also proposes 
to update Footnote 24 in the Fees Schedule, as well as remove the 
reference to Footnote 24 in the Market-Maker Tier Appointment Fee 
Table. By way of background, in June 2020, the Exchange adopted 
Footnote 24 to describe pricing changes that would apply for the 
duration of time the Exchange trading floor was being operated in a 
modified manner in connection with the COVID-19 pandemic.\6\ Among 
other changes, Footnote 24 provided that the monthly fee for the SPX/
SPXW Floor Market-Maker Tier Appointment Fee was to be increased to 
$5,000 per Trading Permit from $3,000 per Trading Permit. As the 
Exchange now proposes to maintain the $5,000 rate on a permanent basis 
(i.e., regardless of whether the Exchange is operating in a modified 
state due to COVID-19 pandemic), the Exchange proposes to eliminate the 
reference to the SPX/SPXW Floor Market-Maker Tier Appointment Fee in 
Footnote 24.\7\
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    \6\ See Securities Exchange Act Release No. 89189 (June 30, 
2020), 85 FR 40344 (July 6, 2020) (SR-CBOE-2020-058).
    \7\ The Exchange notes that since its transition to a new 
trading floor facility on June 6, 2022, it has not been operating in 
a modified manner. As such Footnote 24 (i.e., the modified fee 
changes it describes) does not currently apply.
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    The Exchange believes its proposal to increase the SPX (and SPXW) 
Floor Market-Maker Tier Appointment fee is reasonable because the 
proposed amount is not significantly higher than was previously 
assessed (and is the same amount that has been assessed under Footnote 
24 for the last two years). Additionally, the Exchange believes its 
proposal to increase the fee is reasonable as the fee amount has not 
been increased since it was adopted over 12 years ago in July 2010.\11\ 
For example, since its adoption 12 years ago, there has been notable 
inflation. Indeed, the dollar has had an average inflation rate of 2.6% 
per year between 2010 and today, producing a cumulative price increase 
of approximately 37% inflation since 2010, when the SPX and SPXW Floor 
Market-Maker Tier Appointment was first adopted.\12\ Additionally, for 
nearly ten years, Market-Makers were only subject to the original rate 
that was adopted in 2010 (i.e., $3,000) notwithstanding an average 
inflation rate of 2.64% per year. The Exchange believes the proposed 
increase is also reasonable in light of increased costs of services 
since 2010, including those relating to facility and technology 
upgrades associated with the new trading floor, which new floor 
provides a state-of-the-art environment and technology. Although the 
Exchange recently adopted new, and/or updated current, fees associated 
with the new trading floor, it did not pass-through other costs 
incurred in connection with the new trading floor, including design, 
construction and other on-going maintenance costs. Further, the 
Exchange has not modified many of its facilities fees in several years. 
The Exchange notes in particular that the trading pit for SPX is the 
largest trading pit on the new trading floor and represents a 
significant amount of space on the new trading floor. Accordingly, the 
Exchange believes the proposed change is reasonable because it allows 
the Exchange to recoup additional fees associated with the costs of 
operating a modern and cutting-edge trading floor from market 
participants that utilize the most space and resources on said trading 
floor.
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    \11\ See Securities Exchange Act Release No. 62386 (June 25, 
2010), 75 FR 38566 (July 2, 2010) (SR-CBOE-2010-060).
    \12\ See https://www.officialdata.org/us/inflation/2010?amount=1.
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    Additionally, over the last decade the Exchange has made, and 
continues to make, further investments to encourage growth trends in 
SPX volume, including investments in marketing, sales teams, global 
coverage teams, and new product

[[Page 76093]]

innovations (such as adding additional weekly expirations and LEAPS). 
The Exchange notes that the SPX (and SPXW) Tier Appointment fee helps 
fund these efforts. Moreover, although the SPX (and SPXW) Tier 
Appointment fee has not increased since 2010, SPX volume, including 
volume on the trading floor, has increased significantly since that 
time. The Exchange therefore believes the proposed fee increase is 
reasonable because it allows the Exchange to recoup fees associated 
with the costs of maintaining and growing SPX and SPXW, which products 
can help market participants achieve broad market protection.
    The Exchange next notes that it operates in a highly competitive 
environment. The SEC Division of Trading and Markets' Fee Guidance 
provides that in determining whether a proposed fee is constrained by 
significant competitive forces, the Commission will consider whether 
there are reasonable substitutes for the product or service that is the 
subject of a proposed fee.\13\ As described in further detail below, 
the Exchange believes substitutable products are in fact available to 
market participants, including in the Over-the-Counter (OTC) markets. 
Indeed, there are currently 16 registered options exchanges that trade 
options. Based on publicly available information, no single options 
exchange has more than 17% of the market share as of November 21, 
2022.\14\ Further, low barriers to entry mean that new exchanges may 
rapidly and inexpensively enter the market and offer additional 
substitute platforms to further compete with the Exchange and the 
products it offers. For example, there are 3 exchanges that have been 
added in the U.S. options markets in the last 5 years (i.e., Nasdaq 
MRX, LLC, MIAX Pearl, LLC, and MIAX Emerald LLC) and one additional 
options exchange that is expected to launch in 2023 (i.e., MEMX LLC).
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    \13\ See Chairman Jay Clayton, Statement on Division of Trading 
and Markets Staff Fee Guidance, June 12, 2019.
    \14\ See Cboe Global Markets U.S. Options Market Volume Summary 
(November 21, 2022), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange believes that competition in the marketplace 
constrains the ability of exchanges to charge supracompetitive fees for 
access to its products exclusive to that market (``proprietary 
products''). Notably, just as there is no regulatory requirement to 
become a member of any one options exchange, there is also no 
regulatory requirement for any market participant to trade any 
particular product, nor is there any requirement that any Exchange 
create or indefinitely maintain any particular product.\15\ The 
Exchange also highlights that market participants may trade an 
exchange's proprietary products through a third-party without directly 
or indirectly connecting to the exchange. Further, market participants, 
including Market-Makers, may trade the Exchange's products, including 
proprietary products, on or off the Exchange's trading floor (i.e., all 
products are available both electronically and via open outcry on the 
Exchange's trading floor). Indeed, market participants are not 
obligated to trade on the Exchange's trading floor and therefore a 
market participant, including Market-Makers, can choose to trade a 
product electronically instead of on the Exchange's trading floor at 
any time and for any reason, including due to an assessment of the 
reasonableness of fees charged.
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    \15\ If an option class is open for trading on another national 
securities exchange, the Exchange may delist such option class 
immediately. For proprietary products, the Exchange may determine to 
not open for trading any additional series in that option class; may 
restrict series with open interest to closing transactions, provided 
that, opening transactions by Market-Makers executed to accommodate 
closing transactions of other market participants and opening 
transactions by TPH organizations to facilitate the closing 
transactions of public customers executed as crosses pursuant to and 
in accordance with Rule 6.74(b) or (d) may be permitted; and may 
delist the option class when all series within that class have 
expired. See Cboe Rule 4.4, Interpretations and Policies .11.
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    Additionally, market participants may trade any options product, 
including proprietary products, in the unregulated Over-the-Counter 
(OTC) markets for which there is no requirement for fees related to 
those markets to be public. Given the benefits offered by trading 
options on a listed exchange, such as increased market transparency and 
heightened contra-party creditworthiness due to the role of the Options 
Clearing Corporation as issuer and guarantor, the Exchange generally 
seeks to incentivize market participants to trade options on an 
exchange, which further constrains fees that an Exchange may assess. 
Market participants may also access other exchanges to trade other 
similar or competing proprietary or multi-listed products. Alternative 
products to the Exchange's proprietary products may include other 
options products, including options on ETFs or options futures, as well 
as particular ETFs or futures. Particularly, exclusively listed SPX 
options (i.e., a proprietary product) may compete with the following 
products traded on other markets: multiply-listed SPY options (options 
on the ETF), E-mini S&P 500 Options (options on futures), and E-Mini 
S&P 500 futures (futures on index). Accordingly, if a market 
participant views the Exchange's proprietary product as more or less 
attractive than the competition they can switch between similar 
products. As such, the Exchange is subject to competition and does not 
possess anti-competitive pricing power, even with its offering of 
proprietary products such as SPX.
    In connection with a previous proposed amendment to the National 
Market System Plan Governing the Consolidated Audit Trail (``CAT NMS 
Plan'') \16\, the Commission discussed the existence of competition in 
the marketplace generally, and particularly for exchanges with unique 
business models. The Commission recognized for example that while some 
exchanges may have a unique business model that is not currently 
offered by competitors, a competitor could create similar business 
models if demand were adequate, and if a competitor did not do so, the 
Commission believes it would be likely that new entrants would do so if 
the exchange with that unique business model was otherwise 
profitable.\17\ Similarly, although the Exchange may have proprietary 
products not offered by other competitors, not unlike unique business 
models, a competitor could create similar products to an existing 
proprietary product if demand were adequate.
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    \16\ See Securities Exchange Act Release No. 86901 (September 9, 
2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
    \17\ Id.
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    The proposed change is also equitable and not unfairly 
discriminatory as it applies to all Market-Makers that trade SPX on the 
trading floor uniformly. The Exchange believes it's reasonable 
equitable and not unfairly discriminatory to increase the SPX/SPXW 
floor Market-Maker Tier Appointment fee and not the SPX/SPXW electronic 
Market-Maker Tier Appointment fee, as Floor Market-Makers are not 
subject to other costs that electronic Market-Makers are subject to. 
For example, while all Floor Market-Makers automatically have an 
appointment to trade open outcry in all classes traded on the Exchange 
and at no additional cost per appointment, electronic Market-Makers 
must select an appointment in a class (such as SPX) to make markets 
electronically and such appointments are subject to fees under the 
Market-Maker Electronic Appointments Sliding Scale.\18\
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    \18\ See Cboe Options Rules 5.50(a) and (e). See also Cboe 
Options Fees Schedule, Market-Maker EAP Appointments Sliding Scale.

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[[Page 76094]]

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 does not 
believe that the proposed rule changes will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed changes 
would be applied in the same manner to all Floor Market-Makers that 
trade SPX (and/or SPXW). As noted above, the Exchange believes it's 
reasonable to increase the SPX/SPWX Tier Appointment Fee for only Floor 
Market-Makers only as opposed to electronic Market-Makers, because 
electronic Market-Makers are subject to costs Floor Market-Makers are 
not, such as the fees under Market-Maker EAP Appointments Sliding 
Scale.
    The Exchange does not believe that the proposed rule change will 
impose 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 fee relating to a product 
exclusively listed on the Exchange. Additionally, the Exchange operates 
in a highly competitive market. In addition to Cboe Options, TPHs have 
numerous alternative venues that they may participate on (which, as 
described above, list products that compete with SPX options) and 
direct their order flow, including 15 other options exchanges (four of 
which also maintain physical trading floors), 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.\19\ 
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.'' \20\ 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'. . . .''.\21\ 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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    \19\ See Cboe Global Markets, U.S. Options Market Volume Summary 
by Month (November 21, 2022), available at http://markets.cboe.com/us/options/market_share/.
    \20\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \21\ 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 \22\ and paragraph (f) of Rule 19b-4 \23\ 
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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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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-2022-060 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-2022-060. 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-2022-060 and should be submitted on 
or before January 3, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26864 Filed 12-9-22; 8:45 am]
BILLING CODE 8011-01-P


