83 FR 42737 - Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Options Regulatory Fee

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 164 (August 23, 2018)

[Federal Register Volume 83, Number 164 (Thursday, August 23, 2018)]
[Notices]
[Pages 42737-42739]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-18166]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83881; File No. SR-CboeEDGX-2018-034]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Options Regulatory Fee

August 17, 2018.
    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 August 9, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend its fee schedule related to 
the Options Regulatory Fee.
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify the fee schedule applicable to the 
Exchange's options platform (``EDGX Options'') to amend the rate of its 
Options Regulatory Fee (``ORF'').\5\ Currently, the Exchange charges an 
ORF in the amount of $0.0004 per contract side. The Exchange proposes 
to decrease the amount of ORF from $0.0004 per contract side to $0.0001 
per contract side. The proposed change to ORF should continue to 
balance the Exchange's regulatory expenses against the anticipated 
revenue.
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    \5\ The Exchange initially filed the proposed fee change on 
August 1, 2018 (SR-CboeEDGX-2018-028) for August 1, 2018 
effectiveness. On business date August 9, 2018, the Exchange 
withdrew that filing and submitted this filing.
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    The ORF is assessed by the Exchange on each Member for options 
transactions cleared by the Member that are cleared by the Options 
Clearing Corporation (OCC) in the customer range, regardless of the 
exchange on which the transaction occurs. In other words, the Exchange 
imposes the ORF on all customer-range transactions cleared by a Member, 
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 Member or 
non-Clearing Member that ultimately clears the transaction. With 
respect to linkage transactions, the Exchange reimburses its routing 
broker providing Routing Services for options regulatory fees it incurs 
in connection with the Routing Services it provides.
    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 Member customer options business. 
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

[[Page 42738]]

the day to day regulatory work such as surveillances, investigations 
and examinations. The indirect expenses include support from such areas 
as human resources, legal, information technology and accounting. These 
indirect expenses are estimated to be approximately 12% of EDGX 
Options' total regulatory costs for 2018. Thus, direct expenses are 
estimated to be approximately 88% of total regulatory costs for 2018. 
In addition, it is EDGX 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 2018 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.\6\
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    \6\ The Exchange notes that its regulatory responsibilities with 
respect to compliance with options sales practice rules has been 
allocated to the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') under a 17d-2 Agreement. The ORF is not designed to 
cover the cost of options sales practice regulation.
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    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
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, the Exchange will adjust the 
ORF by submitting a fee change filing to the Commission. The Exchange 
notifies Members of adjustments to the ORF via regulatory circular. The 
Exchange provides Members with such notice at least 30 calendar days 
prior to the effective date of the change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\7\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\8\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using its facilities. The Exchange 
notes that it operates in a highly competitive market in which market 
participants can readily direct order flow to competing venues or 
providers of routing services if they deem fee levels to be excessive.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the decreased ORF is equitable and not 
unfairly discriminatory because it would be objectively allocated to 
Members in that it would be charged to all Members on all their 
transactions that clear as customer transactions at the OCC. The 
Exchange believes that decreasing the ORF is reasonable because the 
Exchange's collection of ORF needs to be balanced against the amount of 
regulatory revenue collected by the Exchange. The Exchange believes 
that the proposed adjustment noted herein will serve to continue to 
balance the Exchange's regulatory revenue against its anticipated 
regulatory costs.
    The Exchange has designed the ORF to generate revenues that, when 
combined with all of the Exchange's other regulatory fees, will be less 
than or equal to the Exchange's regulatory costs, which is consistent 
with the Commission's view that regulatory fees be used for regulatory 
purposes and not to support the Exchange's business side. In this 
regard, the Exchange believes that the decreased level of the fee is 
reasonable and appropriate.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. This proposal does not create 
an unnecessary or inappropriate intra-market burden on competition 
because the ORF applies to all customer activity, thereby raising 
regulatory revenue to offset regulatory expenses. It also supplements 
the regulatory revenue derived from non-customer activity. This 
proposal does not create an unnecessary or inappropriate inter-market 
burden on competition because it is a regulatory fee that supports 
regulation in furtherance of the purposes of the Act. The Exchange is 
obligated to ensure that the amount of regulatory revenue collected 
from the ORF, in combination with its other regulatory fees and fines, 
does not exceed regulatory costs.

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 \9\ and paragraph (f) of Rule 19b-4 
thereunder.\10\ 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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 No. SR-CboeEDGX-2018-034 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 No. SR-CboeEDGX-2018-034. 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

[[Page 42739]]

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 No. SR-CboeEDGX-2018-034, and should 
be submitted on or before September 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18166 Filed 8-22-18; 8:45 am]
 BILLING CODE 8011-01-P