[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Notices]
[Pages 3449-3451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00912]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96646; File No. SR-C2-2023-002]


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

January 12, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 3, 2023, 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.
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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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') is filing with 
the Securities and Exchange Commission (``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://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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 January 3, 
2023.
    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 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 18% 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.
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    \3\ See Cboe Global Markets U.S. Options Market Volume Summary 
by Month (December 27, 2022), available at https://markets.cboe.com/us/options/market_statistics/.
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    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

[[Page 3450]]

$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 (i) 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 0.03% of average OCV \6\ from June 2021 and (2) a ``Make Rate'' 
equal to or greater than 97% \7\ or a (ii) 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%.
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    \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 the 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.
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    The Exchange proposes to amend the current criteria under the Bulk 
BOE Port discount program required to receive the offered discounts. 
Particularly, the proposed rule change amends the current criteria in 
prong one for both the 30% and 40% discounts by changing the base 
``step-up'' month from June 2021 to September 2022.
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.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule change to amend the Bulk 
BOE Ports discount program is reasonable, equitable and not unfairly 
discriminatory. The Exchange believes the proposed rule change to 
update the baseline month to a month that is closer in time provides 
for a more relevant measure for ``step-up'' volume. The Exchange 
believes the 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. 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 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. As noted above, the Exchange also believes that the discount 
program, even 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. Further, the discount 
program, even as amended, 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 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 proposed change is also equitable and not unfairly 
discriminatory as it applies uniformly to all Market-Makers. 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

[[Page 3451]]

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 18% 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 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 \11\ and paragraph (f) of Rule 19b-4 \12\ 
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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-C2-2023-002 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-C2-2023-002. 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-C2-2023-002 
and should be submitted on or before February 9, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00912 Filed 1-18-23; 8:45 am]
BILLING CODE 8011-01-P


