FR 2021-02396

The document in question is a notice from the Securities and Exchange Commission regarding a proposed rule change by the Cboe Exchange, Inc., specifically concerning amendments to its fee schedule related to Related Future Cross (RFC) orders. These amendments aim to reflect the permanent adoption of RFC orders in both electronic and open outcry trading environments, effective January 19, 2021.

Summary of the Document

The proposed rule change involves the reconfiguration of fee structures applicable to RFC orders, which are complex transactions combining options with futures contracts. The amendments include the relocation of certain surcharge waivers from one section of the fee schedule to others. The Cboe Exchange suggests these changes to account for the recent shift to a hybrid trading environment, adapting to conditions during the temporary closure of physical trading floors due to the pandemic. The public is invited to comment on these changes, and the SEC retains the authority to intervene within 60 days if it deems necessary to protect investors and uphold public interest.

Significant Issues and Concerns

One of the primary concerns with this document is the complexity of its technical language. For readers without specialized knowledge of securities exchanges and regulatory practices, the intricate details of fee allocations and surcharge adjustments may appear daunting. Furthermore, the movement of fees and exemptions between different footnotes without sufficient context might confuse those trying to understand the historical context of the fee schedule.

Another issue is the lack of detailed analysis regarding the impact of these changes on specific market participants. There is limited discussion on whether the newly structured fee changes could unintentionally favor larger, established trading parties over smaller traders or newcomers.

Impact on the Public

Broadly speaking, these amendments could influence the public by potentially altering the cost dynamics for participants using the Cboe Exchange. For those holding investments tied to RFC orders, changes in trading fees and execution surcharges might indirectly affect investment strategies or returns. However, because these transactions involve complex financial instruments, the direct effect on an average retail investor might be minimal.

Impact on Stakeholders

For stakeholders within the securities market, particularly Trading Permit Holders (TPHs) utilizing RFC orders, the changes could have more significant repercussions. By eliminating certain surcharge waivers and establishing a standardized fee structure, the Exchange possibly aims to streamline the trading process, which could positively impact very active market participants by reducing uncertainties in transaction costs.

Conversely, there may be adverse impacts on smaller or less experienced traders. The restructured fees could disproportionately burden these stakeholders if they rely heavily on the previously available exemptions. Without detailed financial impact analyses, it's challenging to predict the full spectrum of effects on diverse market participants.

Conclusion

In conclusion, while the Cboe Exchange's proposed rule amendments seek to adapt and refine the fee structure in response to evolving trading environments, the document raises questions about clarity and equitable impact. It prompts readers, particularly stakeholders in the trading community, to consider not only the immediate financial effects but also the broader implications of such regulatory shifts. As these changes progress, both the SEC's regulatory oversight and public commentary will play crucial roles in shaping the ultimate outcomes.

The document under analysis is a proposal by the Cboe Exchange, Inc., to amend its fee schedule, which has been filed with the Securities and Exchange Commission (SEC). This document outlines specific charges and waivers related to trading activities, focusing on the concept of Related Future Cross (RFC) orders.

The exchange has proposed amendments to its fee schedule involving various surcharges and waivers:

1. RFC Execution Surcharge: The document specifies a fee of $0.05 per contract for SPX and SPXW RFC initiating orders and $0.04 per contract for VIX RFC initiating orders when the trading floor was inoperable. These charges were relevant during the period when the trading happened electronically due to COVID-19 restrictions on in-person operations.

2. SPX/SPXW Execution Surcharges: The current SPX Execution Surcharge is $0.21 per contract, while the SPXW Execution Surcharge is $0.13 per contract. These surcharges apply to non-Market Maker orders in SPX and SPXW, and are typically waived for RFC transactions, which might encourage more trading volume through RFC orders.

3. Other related surcharges include a VIX Customer Priority Surcharge of $0.20 per contract, and AIM Surcharge fees that range from $0.04 to $0.10 per contract depending on the order type and class.

The reallocation of these fees from one footnote to another in the Fees Schedule could potentially lead to confusion among those not intimately familiar with the fee structure or previous versions of the schedule. This complexity highlights an issue where the amendments may not be immediately clear without significant scrutiny, potentially affecting traders differently based on their familiarity with the exchange's fee mechanisms.

Moreover, there is a concern about whether the changes might disproportionately impact smaller or newer traders relative to larger, more established Trading Permit Holders (TPHs). The consistent application of waivers and surcharges both in electronic and open-outcry formats suggests a focus on maintaining uniform trading conditions across different environments. However, without specific information on how these charges affect various market participants, it is challenging to assess the fairness of the financial implications thoroughly.

Overall, while the proposal seems to emphasize fairness and consistency in applying fees, the lack of detailed explanation regarding the financial impact on distinct trader groups or market participants leaves questions open. This opacity might affect smaller participants more significantly, potentially unintentionally creating barriers due to perceived or actual financial disadvantage.