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Federal Register / Vol. 86, No. 16 / Wednesday, January 27, 2021 / Notices
Electronic Average Daily Volume ADV or, for Tiers 3 through 5, Total Electronic ADV, of which 20% of the qualifying volume for the Tier must be Customer volume.
The Exchange proposes to modify the Fee Schedule to amend the per contract credit applicable to Tier 5 Simple executions by Order Flow Providers that have an affiliated or appointed Market Maker that prepays its Market Maker Fees the Credit. Specifically, the Exchange proposes to modify the amount of the Credit from $0.24 per contract to $0.23 per contract.5
Because the volume of Electronic executions has increased across the industry, the Exchange believes the proposed change would still encourage more participants to try to achieve the Credit by directing more order flow to the Exchange.
The Exchanges fees are constrained by intermarket competition, as ATP
Holders may direct their order flow to any of the 16 options exchanges, including another exchange with similar incentive programs.6 Thus, ATP Holders have a choice of where they direct their order flow, including Electronic volume.
To the extent that the proposed modification to the Credit continues to encourage Customer order flow and Market Makers to prepay their fees, all market participants stand to benefit from both increased Customer order flow to achieve the Credit and continued Market Maker participation to take advantage of having pre-paid their fees. The Exchange believes all market participants stand to benefit from increased order flow, which promotes market depth, facilitates tighter spreads and enhances price discovery.
2. Statutory Basis
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The Exchange believes that the proposed rule change is consistent with Section 6b of the Act,7 in general, and furthers the objectives of Sections 6b4 and 5 of the Act,8 in particular, because it provides for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers and other persons using its facilities and does not unfairly 5 See proposed Fee Schedule, Section I.E., American Customer Engagement ACE Program Table.
6 See, e.g., Cboe Exchange Inc. Cboe, Fee Schedule, Volume Incentive Program, available at:
https cdn.cboe.com/resources/membership/Cboe_
FeeSchedule.pdf providing per contract credits based on volume tiers in Simple and Complex executions.
7 15 U.S.C. 78fb.
8 15 U.S.C. 78fb4 and 5.

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discriminate between customers, issuers, brokers or dealers.
The Proposed Rule Change Is Reasonable The Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. 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. 9
There are currently 16 registered options exchanges competing for order flow. Based on publicly-available information, and excluding index-based options, no single exchange has more than 16% of the market share of executed volume of multiply-listed equity and ETF options trades.10
Therefore, currently no exchange possesses significant pricing power in the execution of multiply-listed equity &
ETF options order flow. More specifically, in November 2020, the Exchange had less than 10% market share of executed volume of multiplylisted equity and ETF options trades.11
The Exchange believes that the evershifting market share among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue or reduce use of certain categories of products, in response to fee changes.
Accordingly, competitive forces constrain options exchange transaction fees. Stated otherwise, changes to exchange transaction fees and credits can have a direct effect on the ability of an exchange to compete for order flow.
The proposed rule change is designed to continue to incent ATP Holders to direct liquidity to the Exchange in Electronic executions, similar to other exchange programs with competitive pricing programs, thereby promoting 9 See Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005
S71004 Reg NMS Adopting Release.
10 The OCC publishes options and futures volume in a variety of formats, including daily and monthly volume by exchange, available here: https
www.theocc.com/Market-Data/Market-DataReports/Volume-and-Open-Interest/MonthlyWeekly-Volume-Statistics.
11 Based on a compilation of OCC data for monthly volume of equity-based options and monthly volume of ETF-based options, see id., the Exchanges market share in multiply-listed equity and ETF options increased from 8.06% for the month of November 2019 to 9.09% for the month of November 2020.

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market depth, price discovery and improvement and enhancing order execution opportunities for market participants. In particular, the Exchange believes it is reasonable to adjust the Credit downward, as the Credit would remain consistent with those offered by a competing options exchange for electronic participants.12
The proposed change is reasonably designed to continue to encourage ATP
Holders to participate in both the ACE
Program and in the Market Maker Prepayment Program and to achieve ACE Tier 5 the highest ACE Tier to qualify for the Credit. The Exchange believes that otherwise maintaining the qualification bases to achieve the ACE
Tier credits should also continue to encourage greater use of the Exchange by all ATP Holders, which may lead to greater opportunities to tradeand for price improvementfor all participants.
Because the ACE Program is based on the amount of Customer business transacted on the Exchange, the Exchange believes the proposed change to decrease the Credit would still continue to incent providers of Customer order flow to direct that order flow to the Exchange. In addition, ATP
Holders affiliated or appointed Market Makers will also continue to be incented to compete to make markets in a manner that enables the Exchange to improve its overall competitiveness and strengthen its market quality for all market participants.
Further, the Exchange believes this proposed change would continue to attract more volume and liquidity to the Exchange generally, and more Customer volume specifically, and would therefore benefit all market participants including those that do not participate in the ACE Program through increased opportunities to trade at potentially improved prices and enhanced opportunities for price discovery. In addition, the proposed change would continue to encourage ATP Holders to have affiliated or appointed Market Makers prepay their Market Maker fees, which in turn encourages the Market Makers to conduct business and to make competitive markets on the Exchange, to the benefit of all markets participants.
Finally, to the extent the proposed change encourages greater volume and liquidity, the Exchange believes the proposed change would continue to improve the Exchanges overall competitiveness and strengthen its market quality for all market participants. In the backdrop of the competitive environment in which the 12 See, e.g., supra note 6 regarding Cboes VIP
Program.

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