Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Options Regulatory Fee, 40449-40452 [2019-17386]
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Federal Register / Vol. 84, No. 157 / Wednesday, August 14, 2019 / Notices
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–2019–051, and should
be submitted on or before September 4,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–17391 Filed 8–13–19; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86606; File No. SR–
EMERALD–2019–29]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Options
Regulatory Fee
August 8, 2019.
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Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on August 1, 2019, MIAX Emerald, LLC
(‘‘MIAX Emerald’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Emerald Fee Schedule
(the ‘‘Fee Schedule’’) to adjust its
Options Regulatory Fee (‘‘ORF’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/ruleCFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
BILLING CODE 8011–01–P
11 17
filings/emerald, at MIAX’s principal
office, and at the Commission’s Public
Reference Room.
Currently, the Exchange charges an
ORF in the amount of $0.00060 per
contract side. The Exchange proposes to
increase this ORF to $0.0013 per
contract side. In light of historical and
projected volume changes and shifts in
the industry and on the Exchange, as
well as changes to the Exchange’s
regulatory cost structure, the Exchange
is proposing to change the amount of
ORF that will be collected by the
Exchange. The Exchange’s proposed
change to the ORF should balance the
Exchange’s regulatory revenue against
the anticipated regulatory costs.
The per-contract ORF will continue to
be assessed by MIAX Emerald to each
MIAX Emerald Member for all options
transactions, including Mini Options,
cleared or ultimately cleared by the
Member which are cleared by the
Options Clearing Corporation (‘‘OCC’’)
in the ‘‘customer’’ range, regardless of
the exchange on which the transaction
occurs. The ORF will be collected by
OCC on behalf of MIAX Emerald from
either (1) a Member that was the
ultimate clearing firm for the transaction
or (2) a non-Member that was the
ultimate clearing firm where a Member
was the executing clearing firm for the
transaction. The Exchange uses reports
from OCC to determine the identity of
the executing clearing firm and ultimate
clearing firm.
To illustrate how the ORF is assessed
and collected, the Exchange provides
the following set of examples. If the
transaction is executed on the Exchange
and the ORF is assessed, if there is no
change to the clearing account of the
original transaction, then the ORF is
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collected from the Member that is the
executing clearing firm for the
transaction. (The Exchange notes that,
for purposes of the Fee Schedule, when
there is no change to the clearing
account of the original transaction, the
executing clearing firm is deemed to be
the ultimate clearing firm.) If there is a
change to the clearing account of the
original transaction (i.e., the executing
clearing firm ‘‘gives-up’’ or ‘‘CMTAs’’
the transaction to another clearing firm),
then the ORF is collected from the
clearing firm that ultimately clears the
transaction—the ultimate clearing firm.
The ultimate clearing firm may be either
a Member or non-Member of the
Exchange. If the transaction is executed
on an away exchange and the ORF is
assessed, then the ORF is collected from
the ultimate clearing firm for the
transaction. Again, the ultimate clearing
firm may be either a Member or nonMember of the Exchange. The Exchange
notes, however, that when the
transaction is executed on an away
exchange, the Exchange does not assess
the ORF when neither the executing
clearing firm nor the ultimate clearing
firm is a Member (even if a Member is
‘‘given-up’’ or ‘‘CMTAed’’ and then
such Member subsequently ‘‘gives-up’’
or ‘‘CMTAs’’ the transaction to another
non-Member via a CMTA reversal).
Finally, the Exchange will not assess the
ORF on outbound linkage trades,
whether executed at the Exchange or an
away exchange. ‘‘Linkage trades’’ are
tagged in the Exchange’s system, so the
Exchange can readily tell them apart
from other trades. A customer order
routed to another exchange results in
two customer trades, one from the
originating exchange and one from the
recipient exchange. Charging ORF on
both trades could result in doublebilling of ORF for a single customer
order, thus the Exchange will not assess
ORF on outbound linkage trades in a
linkage scenario. This assessment
practice is identical to the assessment
practice currently utilized by the
Exchange’s affiliates, Miami
International Securities Exchange, LLC
(‘‘MIAX’’) and MIAX PEARL, LLC
(‘‘MIAX PEARL’’).3
As a practical matter, when a
transaction that is subject to the ORF is
not executed on the Exchange, the
Exchange lacks the information
necessary to identify the order entering
member for that transaction. There are
a multitude of order entering market
participants throughout the industry,
3 See Securities Exchange Act Release Nos. 85162
(February 15, 2019), 84 FR 5783 (February 22, 2019)
(SR–MIAX–2019–01); 85163 (February 15, 2019), 84
FR 5798 (February 22, 2019) (SR–PEARL–2019–01).
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and such participants can make changes
to the market centers to which they
connect, including dropping their
connection to one market center and
establish themselves as participants on
another. For these reasons, it is not
possible for the Exchange to identify,
and thus assess fees such as an ORF, on
order entering participants on away
markets on a given trading day.
Clearing members, however, are
distinguished from order entering
participants because they remain
identified to the Exchange on
information the Exchange receives from
OCC regardless of the identity of the
order entering participant, their
location, and the market center on
which they execute transactions.
Therefore, the Exchange believes it is
more efficient for the operation of the
Exchange and for the marketplace as a
whole to collect the ORF from clearing
members.
The Exchange monitors the amount of
revenue collected from the ORF to
ensure that it, in combination with other
regulatory fees and fines, does not
exceed regulatory costs. In determining
whether an expense is considered a
regulatory cost, the Exchange reviews
all costs and makes determinations if
there is a nexus between the expense
and a regulatory function. The Exchange
notes that fines collected by the
Exchange in connection with a
disciplinary matter offset ORF.
As discussed below, the Exchange
believes it is appropriate to charge the
ORF only to transactions that clear as
customer at the OCC. The Exchange
believes that its broad regulatory
responsibilities with respect to a
Member’s activities supports applying
the ORF to transactions cleared but not
executed by a Member. The Exchange’s
regulatory responsibilities are the same
regardless of whether a Member enters
a transaction or clears a transaction
executed on its behalf. The Exchange
regularly reviews all such activities,
including performing surveillance for
position limit violations, manipulation,
front-running, contrary exercise advice
violations and insider trading. These
activities span across multiple
exchanges.
The ORF is designed to recover a
material portion of the costs to the
Exchange of the supervision and
regulation of Members’ customer
options business, including performing
routine surveillances and investigations,
as well as policy, rulemaking,
interpretive and enforcement activities.
The Exchange believes that revenue
generated from the ORF, when
combined with all of the Exchange’s
other regulatory fees and fines, will
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cover a material portion, but not all, of
the Exchange’s regulatory costs. The
Exchange notes that its regulatory
responsibilities with respect to Member
compliance with options sales practice
rules have been allocated to the
Financial Industry Regulatory Authority
(‘‘FINRA’’) under a 17d–2 Agreement.
The ORF is not designed to cover the
cost of options sales practice regulation.
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 will continue to monitor
MIAX Emerald regulatory costs and
revenues at a minimum on a semiannual 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 will notify
Members of adjustments to the ORF via
regulatory circular at least 30 days prior
to the effective date of the change.
The Exchange believes it is reasonable
and appropriate for the Exchange to
charge the ORF for options transactions
regardless of the exchange on which the
transactions occur. The Exchange has a
statutory obligation to enforce
compliance by Members and their
associated persons under the Act and
the rules of the Exchange and to surveil
for other manipulative conduct by
market participants (including nonMembers) trading on the Exchange. The
Exchange cannot effectively surveil for
such conduct without looking at and
evaluating activity across all options
markets. Many of the Exchange’s market
surveillance programs require the
Exchange to look at and evaluate
activity across all options markets, such
as surveillance for position limit
violations, manipulation, front-running
and contrary exercise advice violations/
expiring exercise declarations. While
much of this activity relates to the
execution of orders, the ORF is assessed
on and collected from clearing firms.
The Exchange, because it lacks access to
information on the identity of the
entering firm for executions that occur
on away markets, believes it is
appropriate to assess the ORF on its
Members’ clearing activity, based on
information the Exchange receives from
OCC, including for away market
activity. Among other reasons, doing so
better and more accurately captures
activity that occurs away from the
Exchange over which the Exchange has
a degree of regulatory responsibility. In
so doing, the Exchange believes that
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assessing ORF on Member clearing firms
equitably distributes the collection of
ORF in a fair and reasonable manner.
Also, the Exchange and the other
options exchanges are required to
populate a consolidated options audit
trail (‘‘COATS’’) 4 system in order to
surveil a Member’s activities across
markets.
In addition to its own surveillance
programs, the Exchange works with
other SROs and exchanges on
intermarket surveillance related issues.
Through its participation in the
Intermarket Surveillance Group
(‘‘ISG’’),5 the Exchange shares
information and coordinates inquiries
and investigations with other exchanges
designed to address potential
intermarket manipulation and trading
abuses. The Exchange’s participation in
ISG helps it to satisfy the requirement
that it has coordinated surveillance with
markets on which security futures are
traded and markets on which any
security underlying security futures are
traded to detect manipulation and
insider trading.6
The Exchange believes that charging
the ORF across markets avoids having
Members direct their trades to other
markets in order to avoid the fee and to
thereby avoid paying for their fair share
for regulation. If the ORF did not apply
to activity across markets then a
Member would send their orders to the
least cost, least regulated exchange.
Other exchanges do impose a similar fee
on their members’ activity, including
the activity of those members on MIAX
Emerald,7 including the activity of those
members on MIAX Emerald, MIAX and
MIAX PEARL.8 The Exchange notes that
there is established precedent for an
SRO charging a fee across markets,
4 COATS effectively enhances intermarket
options surveillance by enabling the options
exchanges to reconstruct the market promptly to
effectively surveil certain rules.
5 ISG is an industry organization formed in 1983
to coordinate intermarket surveillance among the
SROs by co-operatively sharing regulatory
information pursuant to a written agreement
between the parties. The goal of the ISG’s
information sharing is to coordinate regulatory
efforts to address potential intermarket trading
abuses and manipulations.
6 See Section 6(h)(3)(I) of the Act.
7 Similar regulatory fees have been instituted by
Nasdaq PHLX LLC (‘‘Phlx’’) (See Securities
Exchange Act Release No. 61133 (December 9,
2009), 74 FR 66715 (December 16, 2009) (SR-Phlx–
2009–100)); Nasdaq ISE, LLC (‘‘ISE’’) (See Securities
Exchange Act Release No. 61154 (December 11,
2009), 74 FR 67278 (December 18, 2009) (SR–ISE–
2009–105)); and Nasdaq GEMX, LLC (‘‘GEMX’’)
(See Securities Exchange Act Release No. 70200
(August 14, 2013) 78 FR 51242 (August 20, 2013)
(SR–Topaz–2013–01)).
8 See supra note 3.
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namely, FINRAs Trading Activity Fee 9
and the NYSE American LLC (‘‘NYSE
American’’), NYSE Arca, Inc. (‘‘NYSE
Arca’’), Cboe Exchange, Inc. (‘‘CBOE’’),
Nasdaq PHLX LLC (‘‘Phlx’’), Nasdaq
ISE, LLC (‘‘ISE’’), Nasdaq GEMX, LLC
(‘‘GEMX’’) and BOX Exchange LLC
(‘‘BOX’’) ORF. While the Exchange does
not have all the same regulatory
responsibilities as FINRA, the Exchange
believes that, like other exchanges that
have adopted an ORF, its broad
regulatory responsibilities with respect
to a Member’s activities, irrespective of
where their transactions take place,
supports a regulatory fee applicable to
transactions on other markets. Unlike
FINRA’s Trading Activity Fee, the ORF
applies only to a Member’s customer
options transactions.
Additionally, the Exchange specifies
in the Fee Schedule that the Exchange
may only increase or decrease the ORF
semi-annually, and any such fee change
will be effective on the first business
day of February or August. In addition
to submitting a proposed rule change to
the Commission as required by the Act
to increase or decrease the ORF, the
Exchange notifies participants via a
Regulatory Circular of any anticipated
change in the amount of the fee at least
30 calendar days prior to the effective
date of the change. The Exchange
believes that by providing guidance on
the timing of any changes to the ORF,
the Exchange makes it easier for
participants to ensure their systems are
configured to properly account for the
ORF.
The Exchange is proposing to increase
the ORF from $0.00060 to $0.0013, as of
August 1, 2019. In light of recent market
volumes on the Exchange and changes
to the Exchange’s regulatory costs, the
Exchange is proposing to increase the
amount of ORF that will be collected by
the Exchange. As noted above, the
Exchange regularly reviews its ORF to
ensure that the ORF, in combination
with its other regulatory fees and fines,
does not exceed regulatory costs. The
Exchange believes this adjustment will
permit the Exchange to cover a material
portion of its regulatory costs, while not
exceeding regulatory costs.
In connection with this filing, the
Exchange notes that its affiliates, MIAX
and MIAX PEARL, will also be adjusting
the ORF fees that each of those
exchanges charge. Including the
proposed adjustments to ORF of both
MIAX and MIAX PEARL with the
proposed adjustment by the Exchange,
MIAX Emerald and its affiliates’ ORF
9 See Securities Exchange Act Release No. 47946
(May 30, 2003), 68 FR 34021 (June 6, 2003) (SR–
NASD–2002–148).
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will see a net decrease from $0.0063 to
$0.0053 with the proposed adjustments
for August 1, 2019.
The Exchange notified Members via a
Regulatory Circular of the proposed
change to the ORF at least thirty (30)
calendar days prior to the proposed
operative date, on July 1, 2019.10 The
Exchange believes that the prior
notification to market participants will
ensure market participants are prepared
to configure their systems to properly
account for the ORF.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 11
in general, and furthers the objectives of
Section 6(b)(4) of the Act 12 in
particular, in that it is an equitable
allocation of reasonable dues, fees, and
other charges among its members and
issuers and other persons using its
facilities. The Exchange also believes
the proposal furthers the objectives of
Section 6(b)(5) of the Act 13 in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers.
The Exchange believes that increasing
the ORF from $0.00060 to $0.0013, as of
August 1, 2019 is reasonable because
the Exchange’s collection of ORF needs
to be balanced against the amount of
regulatory costs incurred by the
Exchange. The Exchange believes that
the proposed adjustments noted herein
will serve to balance the Exchange’s
regulatory revenue against the
anticipated regulatory costs.
The Exchange believes that increasing
the ORF from $0.00060 to $0.0013, as of
August 1, 2019, is equitable and not
unfairly discriminatory because it is
objectively allocated to Members in that
it is charged to all Members on all their
transactions that clear as customer at the
OCC. Moreover, the Exchange believes
the ORF ensures fairness by assessing
fees to those Members that are directly
based on the amount of customer
options business they conduct.
Regulating customer trading activity is
much more labor intensive and requires
greater expenditure of human and
10 See MIAX Emerald Regulatory Circular 2019–
61 available at https://www.miaxoptions.com/sites/
default/files/circular-files/MIAX_Emerald_RC_
2019_61.pdf.
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(4).
13 15 U.S.C. 78f(b)(5).
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technical resources than regulating noncustomer trading activity, which tends
to be more automated and less laborintensive. 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 noncustomer component (e.g., Member
proprietary transactions) of its
regulatory program.
The ORF is designed to recover a
material portion of the costs of
supervising and regulating Members’
customer options business including
performing routine surveillances and
investigations, as well as policy,
rulemaking, interpretive and
enforcement activities. The Exchange
will 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 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 proposed increase to the fee is
reasonable.
The Exchange believes that
continuing to limit changes to the ORF
to twice a year on specific dates with
advance notice is reasonable because it
gives participants certainty on the
timing of changes, if any, and better
enables them to properly account for
ORF charges among their customers.
The Exchange believes that continuing
to limit changes to the ORF to twice a
year on specific dates is equitable and
not unfairly discriminatory because it
will apply in the same manner to all
Members that are subject to the ORF and
provide them with additional advance
notice of changes to that fee.
The Exchange believes that collecting
the ORF from non-Members when such
non-Members ultimately clear the
transaction (that is, when the nonMember is the ‘‘ultimate clearing firm’’
for a transaction in which a Member
was assessed the ORF) is an equitable
allocation of reasonable dues, fees, and
other charges among its members and
issuers and other persons using its
facilities. The Exchange notes that there
is a material distinction between
‘‘assessing’’ the ORF and ‘‘collecting’’
the ORF. The ORF is only assessed to
a Member with respect to a particular
transaction in which it is either the
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executing clearing firm or ultimate
clearing firm. The Exchange does not
assess the ORF to non-Members. Once,
however, the ORF is assessed to a
Member for a particular transaction, the
ORF may be collected from the Member
or a non-Member, depending on how
the transaction is cleared at OCC. If
there was no change to the clearing
account of the original transaction, the
ORF would be collected from the
Member. If there was a change to the
clearing account of the original
transaction and a non-Member becomes
the ultimate clearing firm for that
transaction, then the ORF will be
collected from that non-Member. The
Exchange believes that this collection
practice continues to be reasonable and
appropriate, and was originally
instituted for the benefit of clearing
firms that desired to have the ORF be
collected from the clearing firm that
ultimately clears the transaction.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
MIAX Emerald 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, and is designed to
enable the Exchange to recover a
material portion of the Exchange’s cost
related to its regulatory activities. It also
supplements the regulatory revenue
derived from non-customer activity.
This proposal does not create an
unnecessary or inappropriate intermarket 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. Unilateral
action by MIAX Emerald in establishing
fees for services provided to its
Members and others using its facilities
will not have an impact on competition.
As a new entrant in the highly
competitive environment for equity
options trading, MIAX Emerald does not
have the market power necessary to set
prices for services that are unreasonable
or unfairly discriminatory in violation
of the Act. The Exchange’s ORF, as
described herein, is comparable to fees
charged by other options exchanges for
the same or similar services. The
Exchange believes that continuing to
limit the changes to the ORF to twice a
year on specific dates with advance
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notice is not intended to address a
competitive issue but rather to provide
Members with better notice of any
change that the Exchange may make to
the ORF.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
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)(ii) of the Act,14 and Rule
19b–4(f)(2) 15 thereunder. 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. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
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 rule-comments@
sec.gov. Please include File No. SR–
EMERALD–2019–29 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–EMERALD–2019–29. 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
10:00 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–EMERALD–2019–29, and should be
submitted on or before September 4,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–17386 Filed 8–13–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86605; File No. SR–C2–
2019–018]
Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Options
Regulatory Fee
August 8, 2019.
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 1,
2019, Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
16 17
14 15
U.S.C. 78s(b)(3)(A)(ii).
15 17 CFR 240.19b–4(f)(2).
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\14AUN1.SGM
14AUN1
]]>Agencies
[Federal Register Volume 84, Number 157 (Wednesday, August 14, 2019)]
[Notices]
[Pages 40449-40452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17386]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86606; File No. SR-EMERALD-2019-29]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Options Regulatory Fee
August 8, 2019.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on August 1, 2019, MIAX Emerald, LLC (``MIAX
Emerald'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a 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
The Exchange is filing a proposal to amend the MIAX Emerald Fee
Schedule (the ``Fee Schedule'') to adjust its Options Regulatory Fee
(``ORF'').
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/emerald, at MIAX's
principal office, 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Currently, the Exchange charges an ORF in the amount of $0.00060
per contract side. The Exchange proposes to increase this ORF to
$0.0013 per contract side. In light of historical and projected volume
changes and shifts in the industry and on the Exchange, as well as
changes to the Exchange's regulatory cost structure, the Exchange is
proposing to change the amount of ORF that will be collected by the
Exchange. The Exchange's proposed change to the ORF should balance the
Exchange's regulatory revenue against the anticipated regulatory costs.
The per-contract ORF will continue to be assessed by MIAX Emerald
to each MIAX Emerald Member for all options transactions, including
Mini Options, cleared or ultimately cleared by the Member which are
cleared by the Options Clearing Corporation (``OCC'') in the
``customer'' range, regardless of the exchange on which the transaction
occurs. The ORF will be collected by OCC on behalf of MIAX Emerald from
either (1) a Member that was the ultimate clearing firm for the
transaction or (2) a non-Member that was the ultimate clearing firm
where a Member was the executing clearing firm for the transaction. The
Exchange uses reports from OCC to determine the identity of the
executing clearing firm and ultimate clearing firm.
To illustrate how the ORF is assessed and collected, the Exchange
provides the following set of examples. If the transaction is executed
on the Exchange and the ORF is assessed, if there is no change to the
clearing account of the original transaction, then the ORF is collected
from the Member that is the executing clearing firm for the
transaction. (The Exchange notes that, for purposes of the Fee
Schedule, when there is no change to the clearing account of the
original transaction, the executing clearing firm is deemed to be the
ultimate clearing firm.) If there is a change to the clearing account
of the original transaction (i.e., the executing clearing firm ``gives-
up'' or ``CMTAs'' the transaction to another clearing firm), then the
ORF is collected from the clearing firm that ultimately clears the
transaction--the ultimate clearing firm. The ultimate clearing firm may
be either a Member or non-Member of the Exchange. If the transaction is
executed on an away exchange and the ORF is assessed, then the ORF is
collected from the ultimate clearing firm for the transaction. Again,
the ultimate clearing firm may be either a Member or non-Member of the
Exchange. The Exchange notes, however, that when the transaction is
executed on an away exchange, the Exchange does not assess the ORF when
neither the executing clearing firm nor the ultimate clearing firm is a
Member (even if a Member is ``given-up'' or ``CMTAed'' and then such
Member subsequently ``gives-up'' or ``CMTAs'' the transaction to
another non-Member via a CMTA reversal). Finally, the Exchange will not
assess the ORF on outbound linkage trades, whether executed at the
Exchange or an away exchange. ``Linkage trades'' are tagged in the
Exchange's system, so the Exchange can readily tell them apart from
other trades. A customer order routed to another exchange results in
two customer trades, one from the originating exchange and one from the
recipient exchange. Charging ORF on both trades could result in double-
billing of ORF for a single customer order, thus the Exchange will not
assess ORF on outbound linkage trades in a linkage scenario. This
assessment practice is identical to the assessment practice currently
utilized by the Exchange's affiliates, Miami International Securities
Exchange, LLC (``MIAX'') and MIAX PEARL, LLC (``MIAX PEARL'').\3\
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\3\ See Securities Exchange Act Release Nos. 85162 (February 15,
2019), 84 FR 5783 (February 22, 2019) (SR-MIAX-2019-01); 85163
(February 15, 2019), 84 FR 5798 (February 22, 2019) (SR-PEARL-2019-
01).
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As a practical matter, when a transaction that is subject to the
ORF is not executed on the Exchange, the Exchange lacks the information
necessary to identify the order entering member for that transaction.
There are a multitude of order entering market participants throughout
the industry,
[[Page 40450]]
and such participants can make changes to the market centers to which
they connect, including dropping their connection to one market center
and establish themselves as participants on another. For these reasons,
it is not possible for the Exchange to identify, and thus assess fees
such as an ORF, on order entering participants on away markets on a
given trading day.
Clearing members, however, are distinguished from order entering
participants because they remain identified to the Exchange on
information the Exchange receives from OCC regardless of the identity
of the order entering participant, their location, and the market
center on which they execute transactions. Therefore, the Exchange
believes it is more efficient for the operation of the Exchange and for
the marketplace as a whole to collect the ORF from clearing members.
The Exchange monitors the amount of revenue collected from the ORF
to ensure that it, in combination with other regulatory fees and fines,
does not exceed regulatory costs. In determining whether an expense is
considered a regulatory cost, the Exchange reviews all costs and makes
determinations if there is a nexus between the expense and a regulatory
function. The Exchange notes that fines collected by the Exchange in
connection with a disciplinary matter offset ORF.
As discussed below, the Exchange believes it is appropriate to
charge the ORF only to transactions that clear as customer at the OCC.
The Exchange believes that its broad regulatory responsibilities with
respect to a Member's activities supports applying the ORF to
transactions cleared but not executed by a Member. The Exchange's
regulatory responsibilities are the same regardless of whether a Member
enters a transaction or clears a transaction executed on its behalf.
The Exchange regularly reviews all such activities, including
performing surveillance for position limit violations, manipulation,
front-running, contrary exercise advice violations and insider trading.
These activities span across multiple exchanges.
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of Members' customer
options business, including performing routine surveillances and
investigations, as well as policy, rulemaking, interpretive and
enforcement activities. 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 notes that its regulatory
responsibilities with respect to Member compliance with options sales
practice rules have been allocated to the Financial Industry Regulatory
Authority (``FINRA'') under a 17d-2 Agreement. The ORF is not designed
to cover the cost of options sales practice regulation.
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 will continue to monitor MIAX Emerald
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 will notify Members of adjustments to the ORF via regulatory
circular at least 30 days prior to the effective date of the change.
The Exchange believes it is reasonable and appropriate for the
Exchange to charge the ORF for options transactions regardless of the
exchange on which the transactions occur. The Exchange has a statutory
obligation to enforce compliance by Members and their associated
persons under the Act and the rules of the Exchange and to surveil for
other manipulative conduct by market participants (including non-
Members) trading on the Exchange. The Exchange cannot effectively
surveil for such conduct without looking at and evaluating activity
across all options markets. Many of the Exchange's market surveillance
programs require the Exchange to look at and evaluate activity across
all options markets, such as surveillance for position limit
violations, manipulation, front-running and contrary exercise advice
violations/expiring exercise declarations. While much of this activity
relates to the execution of orders, the ORF is assessed on and
collected from clearing firms. The Exchange, because it lacks access to
information on the identity of the entering firm for executions that
occur on away markets, believes it is appropriate to assess the ORF on
its Members' clearing activity, based on information the Exchange
receives from OCC, including for away market activity. Among other
reasons, doing so better and more accurately captures activity that
occurs away from the Exchange over which the Exchange has a degree of
regulatory responsibility. In so doing, the Exchange believes that
assessing ORF on Member clearing firms equitably distributes the
collection of ORF in a fair and reasonable manner. Also, the Exchange
and the other options exchanges are required to populate a consolidated
options audit trail (``COATS'') \4\ system in order to surveil a
Member's activities across markets.
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\4\ COATS effectively enhances intermarket options surveillance
by enabling the options exchanges to reconstruct the market promptly
to effectively surveil certain rules.
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In addition to its own surveillance programs, the Exchange works
with other SROs and exchanges on intermarket surveillance related
issues. Through its participation in the Intermarket Surveillance Group
(``ISG''),\5\ the Exchange shares information and coordinates inquiries
and investigations with other exchanges designed to address potential
intermarket manipulation and trading abuses. The Exchange's
participation in ISG helps it to satisfy the requirement that it has
coordinated surveillance with markets on which security futures are
traded and markets on which any security underlying security futures
are traded to detect manipulation and insider trading.\6\
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\5\ ISG is an industry organization formed in 1983 to coordinate
intermarket surveillance among the SROs by co-operatively sharing
regulatory information pursuant to a written agreement between the
parties. The goal of the ISG's information sharing is to coordinate
regulatory efforts to address potential intermarket trading abuses
and manipulations.
\6\ See Section 6(h)(3)(I) of the Act.
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The Exchange believes that charging the ORF across markets avoids
having Members direct their trades to other markets in order to avoid
the fee and to thereby avoid paying for their fair share for
regulation. If the ORF did not apply to activity across markets then a
Member would send their orders to the least cost, least regulated
exchange. Other exchanges do impose a similar fee on their members'
activity, including the activity of those members on MIAX Emerald,\7\
including the activity of those members on MIAX Emerald, MIAX and MIAX
PEARL.\8\ The Exchange notes that there is established precedent for an
SRO charging a fee across markets,
[[Page 40451]]
namely, FINRAs Trading Activity Fee \9\ and the NYSE American LLC
(``NYSE American''), NYSE Arca, Inc. (``NYSE Arca''), Cboe Exchange,
Inc. (``CBOE''), Nasdaq PHLX LLC (``Phlx''), Nasdaq ISE, LLC (``ISE''),
Nasdaq GEMX, LLC (``GEMX'') and BOX Exchange LLC (``BOX'') ORF. While
the Exchange does not have all the same regulatory responsibilities as
FINRA, the Exchange believes that, like other exchanges that have
adopted an ORF, its broad regulatory responsibilities with respect to a
Member's activities, irrespective of where their transactions take
place, supports a regulatory fee applicable to transactions on other
markets. Unlike FINRA's Trading Activity Fee, the ORF applies only to a
Member's customer options transactions.
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\7\ Similar regulatory fees have been instituted by Nasdaq PHLX
LLC (``Phlx'') (See Securities Exchange Act Release No. 61133
(December 9, 2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-
100)); Nasdaq ISE, LLC (``ISE'') (See Securities Exchange Act
Release No. 61154 (December 11, 2009), 74 FR 67278 (December 18,
2009) (SR-ISE-2009-105)); and Nasdaq GEMX, LLC (``GEMX'') (See
Securities Exchange Act Release No. 70200 (August 14, 2013) 78 FR
51242 (August 20, 2013) (SR-Topaz-2013-01)).
\8\ See supra note 3.
\9\ See Securities Exchange Act Release No. 47946 (May 30,
2003), 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148).
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Additionally, the Exchange specifies in the Fee Schedule that the
Exchange may only increase or decrease the ORF semi-annually, and any
such fee change will be effective on the first business day of February
or August. In addition to submitting a proposed rule change to the
Commission as required by the Act to increase or decrease the ORF, the
Exchange notifies participants via a Regulatory Circular of any
anticipated change in the amount of the fee at least 30 calendar days
prior to the effective date of the change. The Exchange believes that
by providing guidance on the timing of any changes to the ORF, the
Exchange makes it easier for participants to ensure their systems are
configured to properly account for the ORF.
The Exchange is proposing to increase the ORF from $0.00060 to
$0.0013, as of August 1, 2019. In light of recent market volumes on the
Exchange and changes to the Exchange's regulatory costs, the Exchange
is proposing to increase the amount of ORF that will be collected by
the Exchange. As noted above, the Exchange regularly reviews its ORF to
ensure that the ORF, in combination with its other regulatory fees and
fines, does not exceed regulatory costs. The Exchange believes this
adjustment will permit the Exchange to cover a material portion of its
regulatory costs, while not exceeding regulatory costs.
In connection with this filing, the Exchange notes that its
affiliates, MIAX and MIAX PEARL, will also be adjusting the ORF fees
that each of those exchanges charge. Including the proposed adjustments
to ORF of both MIAX and MIAX PEARL with the proposed adjustment by the
Exchange, MIAX Emerald and its affiliates' ORF will see a net decrease
from $0.0063 to $0.0053 with the proposed adjustments for August 1,
2019.
The Exchange notified Members via a Regulatory Circular of the
proposed change to the ORF at least thirty (30) calendar days prior to
the proposed operative date, on July 1, 2019.\10\ The Exchange believes
that the prior notification to market participants will ensure market
participants are prepared to configure their systems to properly
account for the ORF.
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\10\ See MIAX Emerald Regulatory Circular 2019-61 available at
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2019_61.pdf.
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2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \11\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \12\ in
particular, in that it is an equitable allocation of reasonable dues,
fees, and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act \13\ in that it is
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest and is not designed to permit unfair discrimination
between customers, issuers, brokers and dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that increasing the ORF from $0.00060 to
$0.0013, as of August 1, 2019 is reasonable because the Exchange's
collection of ORF needs to be balanced against the amount of regulatory
costs incurred by the Exchange. The Exchange believes that the proposed
adjustments noted herein will serve to balance the Exchange's
regulatory revenue against the anticipated regulatory costs.
The Exchange believes that increasing the ORF from $0.00060 to
$0.0013, as of August 1, 2019, is equitable and not unfairly
discriminatory because it is objectively allocated to Members in that
it is charged to all Members on all their transactions that clear as
customer at the OCC. Moreover, the Exchange believes the ORF ensures
fairness by assessing fees to those Members that are directly based on
the amount of customer options business they conduct. Regulating
customer trading activity is much more labor intensive and requires
greater expenditure of human and technical resources than regulating
non-customer trading activity, which tends to be more automated and
less labor-intensive. 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., Member proprietary
transactions) of its regulatory program.
The ORF is designed to recover a material portion of the costs of
supervising and regulating Members' customer options business including
performing routine surveillances and investigations, as well as policy,
rulemaking, interpretive and enforcement activities. The Exchange will
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 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 proposed increase to the fee is reasonable.
The Exchange believes that continuing to limit changes to the ORF
to twice a year on specific dates with advance notice is reasonable
because it gives participants certainty on the timing of changes, if
any, and better enables them to properly account for ORF charges among
their customers. The Exchange believes that continuing to limit changes
to the ORF to twice a year on specific dates is equitable and not
unfairly discriminatory because it will apply in the same manner to all
Members that are subject to the ORF and provide them with additional
advance notice of changes to that fee.
The Exchange believes that collecting the ORF from non-Members when
such non-Members ultimately clear the transaction (that is, when the
non-Member is the ``ultimate clearing firm'' for a transaction in which
a Member was assessed the ORF) is an equitable allocation of reasonable
dues, fees, and other charges among its members and issuers and other
persons using its facilities. The Exchange notes that there is a
material distinction between ``assessing'' the ORF and ``collecting''
the ORF. The ORF is only assessed to a Member with respect to a
particular transaction in which it is either the
[[Page 40452]]
executing clearing firm or ultimate clearing firm. The Exchange does
not assess the ORF to non-Members. Once, however, the ORF is assessed
to a Member for a particular transaction, the ORF may be collected from
the Member or a non-Member, depending on how the transaction is cleared
at OCC. If there was no change to the clearing account of the original
transaction, the ORF would be collected from the Member. If there was a
change to the clearing account of the original transaction and a non-
Member becomes the ultimate clearing firm for that transaction, then
the ORF will be collected from that non-Member. The Exchange believes
that this collection practice continues to be reasonable and
appropriate, and was originally instituted for the benefit of clearing
firms that desired to have the ORF be collected from the clearing firm
that ultimately clears the transaction.
B. Self-Regulatory Organization's Statement on Burden on Competition
MIAX Emerald 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, and is designed to
enable the Exchange to recover a material portion of the Exchange's
cost related to its regulatory activities. 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. Unilateral action by MIAX Emerald in establishing
fees for services provided to its Members and others using its
facilities will not have an impact on competition. As a new entrant in
the highly competitive environment for equity options trading, MIAX
Emerald does not have the market power necessary to set prices for
services that are unreasonable or unfairly discriminatory in violation
of the Act. The Exchange's ORF, as described herein, is comparable to
fees charged by other options exchanges for the same or similar
services. The Exchange believes that continuing to limit the changes to
the ORF to twice a year on specific dates with advance notice is not
intended to address a competitive issue but rather to provide Members
with better notice of any change that the Exchange may make to the ORF.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
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)(ii) of the Act,\14\ and Rule 19b-4(f)(2) \15\ thereunder.
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. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\14\ 15 U.S.C. 78s(b)(3)(A)(ii).
\15\ 17 CFR 240.19b-4(f)(2).
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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 No. SR-EMERALD-2019-29 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-EMERALD-2019-29. 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 10:00 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-EMERALD-2019-29, and should be submitted on
or before September 4, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17386 Filed 8-13-19; 8:45 am]
BILLING CODE 8011-01-P
