
[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68899-68902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22036]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98660; File No. SR-CBOE-2023-058]


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

September 29, 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 September 28, 2023, 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 
and II 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 relating to the Options

[[Page 68900]]

Regulatory Fee. 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 the Fee Schedule to revise the ORF 
charged solely for the dates of September 28 and 29, 2023.
Background
    By way of background, the ORF is assessed by Cboe Options to each 
Trading Permit Holder (``TPH'') for options transactions cleared by the 
TPH that are cleared by the Options Clearing Corporation (``OCC'') in 
the customer range, regardless of the exchange on which the transaction 
occurs.\3\ In other words, the Exchange imposes the ORF on all 
customer-range transactions cleared by a TPH, even if the transactions 
do not take place on the Exchange. The ORF is collected by OCC on 
behalf of the Exchange from the Clearing Trading Permit Holder 
(``CTPH'') or non-CTPH that ultimately clears the transaction. With 
respect to linkage transactions, Cboe Options reimburses its routing 
broker providing Routing Services pursuant to Cboe Options Rule 5.36 
for options regulatory fees it incurs in connection with the Routing 
Services it provides.
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    \3\ The Exchange notes ORF also applies to customer-range 
transactions executed during Global Trading Hours.
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    Revenue generated from ORF, when combined with all of the 
Exchange's other regulatory fees and fines, is designed to recover a 
material portion of the regulatory costs to the Exchange of the 
supervision and regulation of TPH customer options business including 
performing routine surveillances, investigations, examinations, 
financial monitoring, and policy, rulemaking, interpretive, and 
enforcement activities. Regulatory costs include direct regulatory 
expenses and certain indirect expenses for work allocated in support of 
the regulatory function. The direct expenses include in-house and 
third-party service provider costs to support the day-to-day regulatory 
work such as surveillances, investigations and examinations. The 
indirect expenses include support from such areas as human resources, 
legal, compliance, information technology, facilities and accounting. 
These indirect expenses are estimated to be approximately 30% of Cboe 
Options' total regulatory costs for 2023. Thus, direct expenses are 
estimated to be approximately 70% of total regulatory costs for 2023. 
In addition, it is Cboe Options' practice that revenue generated from 
ORF not exceed more than 75% of total annual regulatory costs. These 
expectations are estimated, preliminary and may change. There can be no 
assurance that our final costs for 2023 will not differ materially from 
these expectations and prior practice; however, the Exchange believes 
that revenue generated from the ORF, when combined with all of the 
Exchange's other regulatory fees and fines, will cover a material 
portion, but not all, of the Exchange's regulatory costs.
    The Exchange monitors its regulatory costs and revenues at a 
minimum on a semi-annual basis. If the Exchange determines regulatory 
revenues exceed or are insufficient to cover a material portion of its 
regulatory costs in a given year, the Exchange will adjust the ORF by 
submitting a fee change filing to the Commission. The Exchange also 
notifies TPHs of adjustments to the ORF via an Exchange Notice, 
including for the change being proposed herein.\4\ Based on the 
Exchange's most recent semi-annual review, the Exchange proposed to 
increase the amount of ORF collected by the Exchange from $0.0017 per 
contract side to $0.0030 per contract side, effective August 1, 
2023.\5\ The proposed increase was based on the Exchange's estimated 
projections for its regulatory costs, which have increased, coupled 
with a projected decrease in the Exchange's other non-ORF regulatory 
fees.\6\ Particularly, based on the Exchange's estimated projections 
for its regulatory costs, the revenue being generated by ORF using the 
then-current rate, would result in projected revenue that is 
insufficient to cover a material portion of its regulatory costs (i.e., 
less than 75% of total annual regulatory costs). Further, when combined 
with the Exchange's projected other non-ORF regulatory fees and fines, 
the revenue being generated by ORF using the then-current rate results 
was projected to result in combined revenue that is less than 100% of 
the Exchange's estimated regulatory costs for the year.
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    \4\ See Exchange Notice, C2023071301 ``Cboe Options Exchanges 
Regulatory Fee Update Effective August 1, 2023.''
    \5\ See Securities Exchange Act Release No. 98106 (August 10, 
2023), 88 FR 55796 (August 16, 2023) (SR-CBOE-2023-038).
    \6\ The Exchange notes that in connection with the August 1, 
2023 ORF rate change, it provided the Commission confidential 
details regarding the Exchange's projected regulatory revenue, 
including projected revenue from ORF, along with a breakout of its 
projected regulatory expenses, including both direct and indirect 
allocations.
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OIP and Current Proposal
    As noted above, on August 1, 2023 the Exchange filed to increase 
ORF to $0.0030 (from $0.0017) per contract side (the ``August ORF 
Filing''). However, on September 28, 2023, the Commission issued the 
Suspension of and Order Instituting Proceedings to Determine whether to 
Approve or Disapprove a Proposed Rule Change to Modify the Options 
Regulatory Fee (``the ``OIP'').\7\ As a result of the OIP, on September 
28, 2023, the ORF reverted back to the rate in place prior to August 1, 
2023 (i.e., $0.0017 per contract side).
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    \7\ See Securities Exchange Act Release No. 98596 (September 28, 
2023) (SR-CBOE-2023-038).
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    To ensure consistency of ORF assessments for the full month of 
September 2023, the Exchange proposes to modify the Fee Schedule to 
specify that the amount of ORF that will be collected by the Exchange 
through September 29, 2023 (i.e., the last trading day of the month of 
September), will be $0.0030 per contract side (the ``September ORF 
Rate'') and that effective October 2, 2023, the ORF will be $0.0017 per 
contract side.\8\ The Exchange believes that revenue generated from the 
ORF, including based on the September ORF Rate, will continue to cover 
a material portion, but not all, of the Exchange's regulatory costs.
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    \8\ This proposal is not intended to be responsive to any issues 
that may be raised in the OIP, but to instead address the immediate 
issue of billing for September 28 and 29th.
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    As noted above, the Exchange endeavors to notify TPHs of any change 
in the amount of the fee at least 30 calendar days prior to the 
effective date of the change via Exchange Notice; however, the Exchange 
notes that as a

[[Page 68901]]

result of the OIP, such notice in this instance could not be given 30 
days in advance.
    For avoidance of doubt, the Exchange notes that the September ORF 
Rate applies only through September 29, 2023 and that the ORF, 
effective October 2, 2023, will be assessed at a rate of $0.0017 per 
contract (i.e., the rate in place prior to the August ORF Filing).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \9\ of the Act, in general, and 
Section 6(b)(4) and (5) \10\ of the Act, in particular, in that it is 
designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members and other persons using its 
facilities and does not unfairly discriminate between customers, 
issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange believes the proposed September ORF Rate is reasonable 
because it would help maintain fair and orderly markets and benefit 
investors and the public interest because it would ensure transparency 
and consistency of ORF for the entire month of September 2023. 
Specifically, the proposal would ensure that the amount of ORF 
collected by the Exchange for the trading days of September 28 and 29, 
2023 will be the same rate collected on every other trading day in 
September (i.e., $0.0030 per contract side). The Exchange believes this 
will avoid disruption to its TPHs that are subject to the ORF. As noted 
above, the Exchange may only use regulatory funds such as ORF ``to fund 
the legal, regulatory, and surveillance operations'' of the Exchange.
The Proposal Is an Equitable Allocation of Fees
    The Exchange believes its proposal is an equitable allocation of 
fees among its market participants. The Exchange believes that the 
proposed September ORF Rate would not place certain market participants 
at an unfair disadvantage because all options transactions must clear 
via a clearing firm. Such clearing firms can then choose to pass 
through all, a portion, or none of the cost of the ORF to its 
customers, i.e., the entering firms. Because the ORF is collected from 
TPH clearing firms by the OCC on behalf of the Exchange, the Exchange 
believes that using options transactions in the Customer range serves 
as a proxy for how to apportion regulatory costs among such TPHs. In 
addition, the Exchange notes that the regulatory costs relating to 
monitoring TPHs with respect to Customer trading activity are generally 
higher than the regulatory costs associated with TPHs that do not 
engage in Customer trading activity, which tends to be more automated 
and less labor-intensive. By contrast, regulating TPHs that engage in 
Customer trading activity is generally more labor intensive and 
requires a greater expenditure of human and technical resources as the 
Exchange needs to review not only the trading activity on behalf of 
Customers, but also the TPH's relationship with its Customers via more 
labor-intensive exam-based programs. As a result, the costs associated 
with administering the customer component of the Exchange's overall 
regulatory program are materially higher than the costs associated with 
administering the non-customer component (e.g., TPH proprietary 
transactions) of its regulatory program. Thus, the Exchange believes 
the September ORF Rate (like the rate assessed for every other trading 
day in September 2023) would be equitably allocated in that it is 
charged to all TPHs on all their transactions that clear in the 
Customer range at the OCC.
The Proposed Fee is not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. The Exchange believes that the proposed September ORF 
Rate would not place certain market participants at an unfair 
disadvantage because all options transactions must clear via a clearing 
firm. Such clearing firms can then choose to pass through all, a 
portion, or none of the cost of the ORF to its customers, i.e., the 
entering firms. Because the ORF is collected from TPH clearing firms by 
the OCC on behalf of the Exchange, the Exchange believes that using 
options transactions in the Customer range serves as a proxy for how to 
apportion regulatory costs among such TPHs. In addition, the Exchange 
notes that the regulatory costs relating to monitoring TPH with respect 
to Customer trading activity are generally higher than the regulatory 
costs associated with TPHs that do not engage in Customer trading 
activity, which tends to be more automated and less labor-intensive. By 
contrast, regulating TPHs that engage in Customer trading activity is 
generally more labor intensive and requires a greater expenditure of 
human and technical resources as the Exchange needs to review not only 
the trading activity on behalf of Customers, but also the TPH's 
relationship with its Customers via more labor-intensive exam-based 
programs. As a result, the costs associated with administering the 
customer component of the Exchange's overall regulatory program are 
materially higher than the costs associated with administering the non-
customer component (e.g., TPH proprietary transactions) of its 
regulatory program. Thus, the Exchange believes the September ORF Rate 
(like the rate assessed for every other trading day in September 2023), 
is not unfairly discriminatory because it is charged to all TPHs on all 
their transactions that clear in the Customer range at the OCC.

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 change will impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
    Intramarket Competition. The Exchange believes the proposed fee 
change would not impose an undue burden on competition as it is charged 
to all TPHs on all their transactions that clear in the Customer range 
at the OCC; thus, the amount of ORF imposed is based on the amount of 
Customer volume transacted. The Exchange believes that the proposed ORF 
would not place certain market participants at an unfair disadvantage 
because all options transactions must clear via a clearing firm. Such 
clearing firms can then choose to pass through all, a portion, or none 
of the cost of the ORF to its customers, i.e., the entering firms. In 
addition, because the ORF is collected from TPH clearing firms by the 
OCC on behalf of the Exchange, the Exchange believes that using options 
transactions in the Customer range serves as a proxy for how to 
apportion regulatory costs among such TPHs.
    Intermarket Competition. The proposed fee change is not designed to 
address any competitive issues. Rather, the proposed change is designed 
to help the Exchange adequately fund its regulatory activities while 
seeking to ensure that total regulatory revenues do not exceed total 
regulatory costs.

[[Page 68902]]

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 is effective upon filing pursuant to 
Section 19(b)(3)(A) \11\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \12\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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 shall institute proceedings under 
Section 19(b)(2)(B) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \13\ 15 U.S.C. 78s(b)(2)(B).
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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CBOE-2023-058 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-2023-058. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CBOE-2023-058 and should be 
submitted on or before October 25, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22036 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P


