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Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 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 rebates can have a direct effect on the ability of an exchange to compete for order flow, including auction volume.
The proposed rule change is designed to incent ATP Holders to direct liquidity to the Exchange in AON CUBE Auction executions, similar to other exchange programs with competitive pricing programs, thereby promoting market depth, price discovery and improvement and enhancing order execution opportunities for market participants. Specifically, the Exchange believes that the proposed fee structure for AON CUBE Orders is reasonably designed to incent ATP Holders to direct liquidity to the Exchange in the form of AON CUBE Auction executions, which increased order flow would improve the overall competitiveness and strengthen the market quality of the Exchange to the benefit of all market participants. The Exchange notes that the proposed structure of fees and credits for AON CUBE Auctions is reasonable because it is both consistent with fees and credits already in place for the same types of orders in SingleLeg and Complex CUBE auctions and is likewise within the range of fees and credits assessed by other exchanges employing similar fee structures for auction mechanisms.16 Consistent with this proposal, competing options exchanges similarly offer different fees and credits for initiating orders, contraside orders, and responders to an auction, and competing options exchanges likewise charge different rates for transactions in their price improvement mechanisms for Customers versus non-Customers.17
16 See, e.g., Cboe EDGX fee schedule, supra note 10 providing, for example, $0.20 per contract fee for non-customer agency orders and $0.20 per contract fee for non-customer contra orders in a SAM auction, in line with the Exchanges proposed $0.20 per contract fee for non-Customer AON CUBE
Orders and AON Contra Orders; Nasdaq ISE
Pricing Schedule, supra note 10 providing, for example, $0.20 per contract fee for non-customer contra orders in Solicited Order Mechanism, in line with the Exchanges proposed $0.20 per contract fee for non-Customer AON Contra Orders.
17 See, e.g., Cboe EDGX fee schedule and Nasdaq ISE Pricing Schedule, supra note 10 providing, for example, $0.20 per contract fee for non-customer initiating orders and no fee for customer initiating orders, consistent with the Exchanges proposal.

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The Exchange also believes that it is reasonable for AON CUBE Orders and AON Contra Orders to be assessed lower fees than those providing RFR
Responses, as structuring fees in this manner would incent market participants to direct orders to initiate AON CUBE Auctions rather than simply respond to them. Further, the Exchange believes that the proposed fees for responding to AON CUBE
Auctions would not deter market participants from providing price improvement, as they are consistent with fees for responding to a non-AON
CUBE auctionwhether Single-Leg or Complexand are also consistent with fees charged to responders on options exchanges offering similar auction mechanisms.
The Exchange also believes that the qualification bases to achieve the ACE
Initiating Participant Rebate are reasonably designed to encourage ATP
Holders to utilize the optional AON
CUBE functionality, which may lead to greater opportunities to tradeand for price improvementfor all participants.
In addition, the Exchange believes that the proposed Floor Broker Initiating Participant Rebate would encourage Floor Brokers to use the AON CUBE
mechanism to execute larger-size orders both Single-Leg and Complex, which would also lead to greater opportunities to trade for all participants because such order flow will be exposed to additional market participants. The Exchange also believes that the proposed rebates are reasonably designed because they are as mentioned above similar to rebates currently available to participants in non-AON CUBE auctions and, to the extent the proposed rebates are higher than existing rebates, the Exchange believes that they represent a reasonable effort to incent the use of a new functionality.
Further, the Exchange believes the proposed fees and credits in connection with AON CUBE auctions would attract more volume and liquidity to the Exchange generally and would therefore benefit all market participants including those that do not participate in auction mechanisms through increased opportunities to trade at potentially improved prices as well as enhancing price discovery. To the extent the proposed fees and credits encourage greater volume and liquidity directed to the Exchange, the proposed changes would improve the Exchanges overall competitiveness and strengthen its market quality for all market participants.

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The Proposed Rule Change Is an Equitable Allocation of Fees and Rebates The Exchange believes the proposed rule change is an equitable allocation of its fees and credits. The proposal is based on the amount and type of business transacted on the Exchange, and ATP Holders can opt to avail themselves of the auction mechanism or not. To the extent that the proposed change attracts more auction executions to the Exchange, this increased order flow would make the Exchange a more competitive venue for order execution.
Thus, the Exchange believes the proposed fees and credits would improve market quality for all market participants on the Exchange and, as a consequence, attract more order flow to the Exchange thereby improving marketwide quality and price discovery.
The Exchange also believes that the proposed fees and credits are equitable because they would apply equally among Customers and would also apply equally among all non-Customers. With respect to Customers, all similarly situated orders for Customers are subject to the same transaction fee schedule.
Furthermore, the Exchange believes that it is equitable that Customers be charged lower fees in AON CUBE Auctions than other market participants, as the exchanges in general have historically aimed to improve markets for investors and develop various features within market structure for customer benefit.18
The Exchange may in some instances assess Customers lower or no transactions fees 19 because Customer order flow enhances liquidity on the Exchange for the benefit of all market participants, and customer liquidity benefits all market participants by providing more trading opportunities, which attracts Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may encourage a corresponding increase in order flow from other market participants.
The Exchange also believes that it is equitable for AON CUBE Orders and AON Contra Orders to be assessed lower fees than those providing RFR
Responses, as structuring fees in this manner would incent market participants to direct orders to participate in AON CUBE Auctions. The Exchange believes that it is equitable to 18 The Exchange also notes that, as discussed above, certain non-Customers may be eligible for various credits and rebates, which would offset their transaction costs.
19 For example, the Exchange offers Customers preferential rates for other trades executed on the Exchange such as for Qualified Contingent Cross orders.

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