Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's Options Regulatory Fee, 44096-44100 [2021-17089]
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Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices
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–ISE–2021–16, and should be
submitted on or before September 1,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–17084 Filed 8–10–21; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change to Amend Phlx’s Options
Regulatory Fee
August 5, 2021.
jbell on DSKJLSW7X2PROD with NOTICES
Pursuant to 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 July 30,
2021, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the 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 proposes to amend
Phlx’s Pricing Schedule at Options 7,
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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23:05 Aug 10, 2021
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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.
1. Purpose
[Release No. 34–92585; File No. SR–Phlx–
2021–39]
1 15
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
24 17
Section 6, Part D related to the Options
Regulatory Fee or ‘‘ORF’’.
While the changes proposed herein
are effective upon filing, the Exchange
has designated the amendments become
operative on October 1, 2021.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
Currently, Phlx assesses an ORF of
$0.0042 per contract side as specified in
Phlx’s Pricing Schedule at Options 7,
Section 6, Part D. The Exchange
proposes to waive its ORF from October
1, 2021 to January 31, 2022, and then
recommence the ORF on February 1,
2022.
By way of background, the options
industry has experienced extremely
high options trading volumes and
volatility. This historical anomaly of
persistent increased options volumes
has impacted Phlx’s ORF collection
which, in turn, has caused the Exchange
to continue to revisit its financial
forecast to reflect the sustained elevated
options volumes and volatility. As the
Exchange continues to monitor the
amount of revenue collected from the
ORF to ensure that our ORF collection,
in combination with other regulatory
fees and fines, does not exceed
regulatory costs, the Exchange has
found it difficult to determine when
volumes will return to more normal
levels. In order to avoid iterative rule
changes to amend its ORF, the Exchange
believes it is prudent to instead waive
its ORF from October 1, 2021 to January
31, 2022, to permit the Exchange to plan
future forecasts without the need to
account for any ORF collection during
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
that timeframe. This proposal would
ensure that revenue collected from the
ORF, in combination with other
regulatory fees and fines, would not
exceed the Exchange’s total regulatory
costs. Phlx would recommence
assessing its current ORF rate of $0.0042
per contract side as of February 1, 2022.
Furthermore, prior to February 1, 2022,
Phlx will examine its ORF rate to
determine if the $0.0042 per contract
side ORF is justified given the current
volumes in 2022 as well as the current
Exchange regulatory expenses at that
time. Phlx would file a proposed rule
change to amend its per contract ORF if
changes are necessary to ensure an
equitable allocation of reasonable ORF,
if e.g., the Exchange believes that the
volumes Phlx experiences in the second
half of 2021 are likely to persist
throughout 2022. Of note, Phlx proposes
to continue to operate with the ORF fee
waived in January 2022 to allow its
member organizations and other broker
dealers time to align their systems for
February 1, 2022, allowing for time after
the holiday period which traditionally
have year-end code freezes in place.
Collection of ORF
Currently, Phlx assesses its ORF for
each customer option transaction that is
either: (1) Executed by a member
organization 3 on Phlx; or (2) cleared by
a Phlx member organization at The
Options Clearing Corporation (‘‘OCC’’)
in the customer range,4 even if the
transaction was executed by a nonmember organization of Phlx, regardless
of the exchange on which the
transaction occurs.5
ORF Revenue and Monitoring of ORF
The Exchange monitors the amount of
revenue collected from the ORF to
ensure that it, in combination with other
3 The term ‘‘member organization’’ means a
corporation, partnership (general or limited),
limited liability partnership, limited liability
company, business trust or similar organization,
transacting business as a broker or a dealer in
securities and which has the status of a member
organization by virtue of (i) admission to
membership given to it by the Membership
Department pursuant to the provisions of General
3, Sections 5 and 10 or the By-Laws or (ii) the
transitional rules adopted by the Exchange pursuant
to Section 6–4 of the By-Laws. References herein to
officer or partner, when used in the context of a
member organization, shall include any person
holding a similar position in any organization other
than a corporation or partnership that has the status
of a member organization. See General 1, Section
1(17).
4 Participants must record the appropriate
account origin code on all orders at the time of
entry of the order. The Exchange represents that it
has surveillances in place to verify that member
organizations mark orders with the correct account
origin code.
5 The Exchange uses reports from OCC when
assessing and collecting the ORF.
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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.
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 6 and member organization
customer options business including
performing routine surveillances,
investigations, examinations, financial
monitoring, and policy, rulemaking,
interpretive, and enforcement activities.
Regulatory costs include direct
regulatory expenses and certain indirect
expenses in support of the regulatory
function. The direct expenses include
in-house and third-party service
provider costs to support the day-to-day
regulatory work such as surveillances,
investigations and examinations. The
indirect expenses include support from
such areas as Office of the General
Counsel, technology, and internal audit.
Indirect expenses are estimated to be
approximately 42% of the total
regulatory costs for 2021. Thus, direct
expenses are estimated to be
approximately 58% of total regulatory
costs for 2021.
The ORF is designed to recover a
material portion of the costs to the
Exchange of the supervision and
regulation of its members and member
organizations, including performing
routine surveillances, investigations,
examinations, financial monitoring, and
policy, rulemaking, interpretive, and
enforcement activities.
Proposal
Based on the Exchange’s most recent
review, the Exchange proposes to waive
Volume
October 2020
jbell on DSKJLSW7X2PROD with NOTICES
Total .................................................................................
Customer .........................................................................
Total ADV ........................................................................
Customer ADV .................................................................
6 The term ‘‘member’’ means a permit holder
which has not been terminated in accordance with
the By-Laws and these Rules of the Exchange. A
member is a natural person and must be a person
associated with a member organization. Any
references in the rules of the Exchange to the rights
VerDate Sep<11>2014
23:05 Aug 10, 2021
Jkt 253001
633,365,184
587,707,301
28,789,326.55
26,713,968.23
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
ORF from October 1, 2021 to January 31,
2022, to help ensure that revenue
collected from the ORF, in combination
with other regulatory fees and fines,
does not exceed the Exchange’s total
regulatory costs. Phlx would
recommence assessing its current ORF
rate of $0.0042 per contract side as of
February 1, 2022. The Exchange issued
an Options Trader Alert on July 2, 2021
indicating the proposed rate change for
October 1, 2021.7
The proposed waiver is based on
recent options volume which has
remained at abnormally and
unexpectedly high levels. Options
volume in 2021 remains significantly
high when that volume is compared to
2019 and 2020 options volume. For
example, total options contract volume
in November 2020 was 71% higher than
the total options contract volume in
November 2019.8 Below is industry data
from OCC 9 which illustrates the
significant increase in volume during
the fourth quarter of 2020.
November 2020
673,660,858
630,297,252
33,683,042.90
31,514,862.60
or obligations of an associated person or person
associated with a member organization also
includes a member. See General 1, Section 1(16).
7 See Options Trader Alert 2021–41.
8 See data from OCC at: https://
www.businesswire.com/news/home/
44097
December 2020
753,568,354
708,037,956
34,253,107.00
32,183,543.45
Q4 2020
2,060,594,396
1,926,042,509
32,196,787.44
30,094,414.20
20201202005584/en/OCC-November-2020-TotalVolume-Up-71-Percent-From-a-Year-Ago.
9 See data from OCC at: https://www.theocc.com/
Market-Data/Market-Data-Reports/Volume-andOpen-Interest/Volume-by-Account-Type.
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Below is industry data from OCC 10
which illustrates the significant increase
in volume from January 2021 through
Volume
January 2021
Total .............................................
Customer ......................................
Total ADV .....................................
Customer ADV .............................
jbell on DSKJLSW7X2PROD with NOTICES
10 Id.
11 The
Exchange notes that its regulatory
responsibilities with respect to member compliance
with options sales practice rules have largely been
allocated to FINRA under a 17d–2 agreement. The
ORF is not designed to cover the cost of that options
sales practice regulation.
23:05 Aug 10, 2021
Jkt 253001
February 2021
838,339,790
784,399,878
44,123,146.84
41,284,204.11
As a result of the historical anomaly
created by these high options volumes,
Phlx has no assurance that the
Exchange’s final costs for 2021 will not
differ materially from these expectations
and prior practice, nor can the Exchange
predict with certainty whether options
volume will remain at the current level
going forward. The Exchange notes
however, that when combined with
regulatory fees and fines, the revenue
being generated utilizing the current
ORF rate may result in revenue in
excess of the Exchange’s estimated
regulatory costs for the year.
Particularly, as noted above, the options
market has seen a substantial increase in
volume in 2021 as compared to 2020,
due in large part to the continued
extreme volatility in the marketplace as
a result of the COVID–19 pandemic.
This unprecedented spike in volatility
resulted in significantly higher volume
than was originally projected by the
Exchange (thereby resulting in
substantially higher ORF revenue than
projected). The Exchange therefore
proposes to waive ORF from October 1,
2021 to January 31, 2022 to ensure it
does not exceed its regulatory costs for
2021. Particularly, the Exchange
believes that waiving ORF from October
1, 2021 to January 31, 2022 and
considering all of the Exchange’s other
regulatory fees and fines would allow
the Exchange to continue covering a
material portion of its regulatory costs,
while lessening the potential for
generating excess revenue that may
otherwise occur using the current rate.11
Phlx would recommence assessing its
current ORF rate of $0.0042 per contract
side as of February 1, 2022. Until
October 1, 2021, 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 regulatory costs. The Exchange
would also continue monitoring the
VerDate Sep<11>2014
March 2021. The options volume in the
first quarter of 2021 was higher than the
fourth quarter of 2020. Also, April and
823,412,827
782,113,450
43,337,517.20
41,163,865.79
March 2021
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.14 Specifically,
the Exchange believes the proposed rule
change is consistent with Section 6(b)(4)
of the Act,15 which provides that
Exchange rules may provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
members, member organizations, and
other persons using its facilities.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 16 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes the proposed
fee waiver is reasonable because
customer transactions will be subject to
no ORF from October 1, 2021 to January
31, 2022. Moreover, the proposed
waiver is necessary, so the Exchange
does not collect revenue in excess of its
anticipated regulatory costs, in
combination with other regulatory fees
and fines, which is consistent with the
Exchange’s practices.
The Exchange designed the ORF to
generate revenues that would be less
than the amount of the Exchange’s
regulatory costs to ensure that it, in
combination with its other regulatory
fees and fines, does not exceed
12 The Exchange will provide member
organizations with such notice at least 30 calendar
days prior to the effective date of the change.
13 The Exchange notes that in connection with
this proposal, it provided the Commission
confidential details regarding the Exchange’s
projected regulatory revenue, including projected
Frm 00111
Fmt 4703
Sfmt 4703
April 2021
898,653,388
837,247,059
39,071,886.40
36,402,046.04
amount of revenue collected from the
ORF when it recommences assessing
ORF on February 1, 2022. If the
Exchange determines regulatory
revenues exceed regulatory costs, the
Exchange will adjust the ORF by
submitting a fee change filing to the
Commission and notifying 12 its member
organizations via an Options Trader
Alert.13
PO 00000
May 2021 volumes remain significantly
high as compared to 2020 options
volume in general.
711,388,828
667,208,963
33,875,658.50
31,771,855.38
May 2021
718,368,993
659,913,862
35,918,449.70
32,995,693.10
regulatory costs, which is consistent
with the view of the Commission that
regulatory fees be used for regulatory
purposes and not to support the
Exchange’s business operations. As
discussed above, however, after review
of its regulatory costs and regulatory
revenues, which includes revenues from
ORF and other regulatory fees and fines,
the Exchange determined that absent a
reduction in ORF, it may be collecting
revenue in excess of its regulatory costs.
Indeed, the Exchange notes that when
considering the recent options volume,
which included an increase in customer
options transactions, it estimates the
ORF may generate revenues that may
cover more than the approximated
Exchange’s projected regulatory costs.
As such, the Exchange believes it’s
reasonable and appropriate to waive
ORF from October 1, 2021 to January 31,
2022 and recommence assessing ORF on
February 1, 2022.
The Exchange also believes the
proposed fee change is equitable and
not unfairly discriminatory as no
member organization would be assessed
an ORF from October 1, 2021 to January
31, 2022. While the Exchange has
assessed and collected ORF from
January through September, 2021, but
will not collect ORF, with this proposal,
from October 2021 through January
2022, the Exchange does not believe that
it is unfairly discriminatory to not
assess the ORF from October 2021
through January 2022 because the ORF
is designed and intended to recover a
portion of the Exchange’s regulatory
costs without collecting in excess of
those costs. Unexpectedly high and
sustained customer volume has resulted
in higher revenues from the ORF that,
if not suspended, will likely result in
over-collection of ORF, which would be
inconsistent with the Exchange’s prior
representations and undertaking to not
collect ORF in excess of regulatory
expenses. Despite decreasing the
revenue from ORF, along with a projected
regulatory expenses.
14 15 U.S.C. 78f(b).
15 15 U.S.C. 78f(b)(4).
16 15 U.S.C. 78f(b)(5).
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amount of the ORF on April 1, 2021, the
Exchange did not decrease the amount
of the ORF again in 2021 because it did
not expect, based on its prior
experience, that customer volume
would remain abnormally high. Also, it
is equitable and not unfairly
discriminatory to recommence the
assessment of the ORF on February 1,
2022 because assessing the ORF to each
member organization for options
transactions cleared by OCC in the
customer range where the execution
occurs on another exchange and is
cleared by aa Phlx member organization
is an equitable allocation of reasonable
dues, fees, and other charges among its
members and issuers and other persons
using its facilities.17
The Exchange believes recommencing
the ORF on February 1, 2022 at the same
rate, unless options volumes at that time
warrant a proposed rule change,
continues to ensure fairness by
assessing higher fees to those member
organizations that require more
Exchange regulatory services based on
the amount of customer options
business they conduct. As noted in prior
ORF rule changes which set the current
ORF rate of $0.0042 per contract side,
regulating customer trading activity is
much more labor intensive and requires
greater expenditure of human and
technical resources than regulating noncustomer trading activity, which tends
to be more automated and less laborintensive. For example, there are costs
associated with main office and branch
office examinations (e.g., staff
expenses), as well as investigations into
customer complaints and the
terminations of registered persons.18
17 If the OCC clearing member is a Phlx member
organization, ORF is assessed and collected on all
cleared customer contracts (after adjustment for
CMTA); and (2) if the OCC clearing member is not
a Phlx member organization, ORF is collected only
on the cleared customer contracts executed at Phlx,
taking into account any CMTA instructions which
may result in collecting the ORF from a nonmember organization.
18 See Securities Exchange Act Release No. 91418
(March 26, 2021), 86 FR 17254 (April 1, 2021) (SR–
Phlx–2021–16) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend
Phlx’s Pricing Schedule at Options 7, Section 6,
Part D To Reduce the Phlx Options Regulatory Fee).
The Exchange also noted in this rule change that,
‘‘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 organization proprietary transactions) of its
regulatory program. Moreover, the Exchange notes
that it has broad regulatory responsibilities with
respect to activities of its member organizations,
irrespective of where their transactions take place.
Many of the Exchange’s surveillance programs for
customer trading activity may require the Exchange
to look at activity across all markets, such as
reviews related to position limit violations and
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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. The
Exchange does not believe that this
proposal creates an unnecessary or
inappropriate intra-market or intermarket burden on competition for
several reasons. First, ORF has been
amended several times since its
inception in 2009.19 For example, most
recently on April 1, 2021, Phlx amended
its ORF rate from $0.0050 to $0.0042 per
contract side as of April 1, 2021.
Member organizations who either
executed a transaction on Phlx or
cleared a transaction at OCC in the
customer range would have been
assessed a higher ORF for a transaction
executed on Phlx on March 31, 2021
($0.0050 per contract side) as compared
to April 1, 2021 ($0.0042 per contract
side). There have been other ORF
amendments prior to 2021 which have
caused Phlx to assess different ORF
rates to member organizations for
different time periods causing member
organizations to have paid different
ORFs since 2009. Second, Phlx’s
regulatory costs have varied over time.
For example, if Phlx received payment
of a fine from a disciplinary action, that
fine would offset regulatory costs and
would cause Phlx to require less
regulatory revenue for a particular
manipulation. Indeed, the Exchange cannot
effectively review for such conduct without looking
at and evaluating activity regardless of where it
transpires. In addition to its own surveillance
programs, the Exchange also works with other SROs
and exchanges on intermarket surveillance related
issues. Through its participation in the Intermarket
Surveillance Group (‘‘ISG’’) the Exchange shares
information and coordinates inquiries and
investigations with other exchanges designed to
address potential intermarket manipulation and
trading abuses. Accordingly, there is a strong nexus
between the ORF and the Exchange’s regulatory
activities with respect to customer trading activity
of its member organizations.’’ See 86 FR 17256–7.
19 See Securities Exchange Act Release Nos.
61133 (December 9, 2009), 74 FR 66715 (December
16, 2009) (SR–Phlx–2009–100); 1529 (February 17,
2010), 75 FR 8421 (February 24, 2010) (SR–Phlx–
2010–17); 62619 (July 30, 2010), 75 FR 47874
(August 9, 2010) (SR–Phlx–2010–100); 63436
(December 6, 2010), 75 FR 77021 (December 10,
2010) (SR–Phlx–2010–166); 65897 (December 6,
2011), 76 FR 77277 (December 12, 2011) (SR–Phlx–
2011–163); 66664 (March 27, 2012), 77 FR 19743
(April 2, 2012) (SR–Phlx–2012–36); 71569
(February 19, 2014), 79 FR 10593 (February 25,
2014) (SR–Phlx–2014–12); 75749 (August 21, 2015),
80 FR 52073 (August 27, 2017) (SR–Phlx–2015–71);
77032 (February 2, 2016), 81 FR 6560 (February 8,
2016) (SR–Phlx–2016–04); and 79751 (January 6,
2017), 82 FR 3826 (January 12, 2017) (SR–Phlx–
2017–02); 81343 (August 8, 2017), 82 FR 37964
(August 14, 2017) (SR–Phlx–2017–54); and 85125
(February 13, 2019), 84 FR 5171 (February 20, 2019)
(SR–Phlx–2019–01).
PO 00000
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44099
period. The changing regulatory costs
would impact the ORF assessed by Phlx
to member organizations. In the past,
the Exchange has amended ORF to be
higher or lower,20 thereby impacting the
amount paid by member organizations
in a calendar year. Third, options
markets assess ORF at different rates.
For instance, today, Nasdaq MRX, LLC
(‘‘MRX’’) assesses a lower ORF of
$0.0004 per contract side.21 MRX has
assessed this rate since February 1,
2019.22 Depending on where a customer
order is executed, a member
organization could be assessed a much
different ORF. For example, in the case
where a customer order is sent to Phlx
and routed to MRX, and a non-member
organization cleared that transaction,
the Phlx ORF of $0.0042 would not be
assessed to the member organization
who executed the transaction or cleared
the transaction, rather the MRX rate of
$0.0004 per contract side would be
assessed. In that same scenario
presuming a non-member organization
cleared the transaction, if the customer
order could have executed on Phlx
instead of routing away the member
organization would have been assessed
the Phlx ORF of $0.0042 per contract
side. The customer, in that instance,
would have no knowledge of where the
order could be executed, as the liquidity
profile of each exchange may differ at
that exact moment. Therefore, member
organizations could be assessed a
different ORF on the same day on the
same transaction based on routing
decisions, and in those cases the
member organization would continue to
benefit from the regulatory program
available on each market and discover
where the liquidity is available,
irrespective of any ORF rate differentials
across markets.
The Exchange believes recommencing
the ORF on February 1, 2022 at the same
rate, unless options volumes or the
Exchange’s regulatory expenses at that
time warrant a proposed rule change,
does not create an undue 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 noncustomer activity. Recommencing the
assessment of the current ORF does not
create an unnecessary or inappropriate
inter-market burden on competition
20 Id.
21 See Securities Exchange Act Release Nos.
85127 (February 13, 2019), 84 FR 5173 (February
20, 2019) (SR–MRX–2019–03).
22 Of note, prior to February 1, 2019, MRX
assessed no ORF thereby creating a calendar year
where member organizations were assessed no ORF
for a period similar to what is proposed.
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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
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 23 of the Act and
subparagraph (f)(2) of Rule 19b-4 24
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 25 of the Act to
determine whether the proposed rule
change 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:
jbell on DSKJLSW7X2PROD with NOTICES
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–
Phlx–2021–39 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–Phlx–2021–39. 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–Phlx–2021–39, and should be
submitted on or before September 1,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–17089 Filed 8–10–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92566; File No. SR–NSCC–
2021–011]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of a
Proposed Rule Change To Remove ID
Net Transactions From the Required
Fund Deposit Calculations and Make
Other Changes to the Rules
August 5, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
23 15
26 17
24 17
1 15
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
25 15 U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
23:05 Aug 10, 2021
Jkt 253001
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
notice is hereby given that on July 27,
2021, National Securities Clearing
Corporation (‘‘NSCC’’) 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 clearing agency. The Commission
is publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
modifications to NSCC’s Rules &
Procedures (‘‘Rules’’) to (1) remove
transactions processed through the ID
Net Service from the calculation of
Members’ Required Fund Deposits to
the Clearing Fund; (2) provide greater
transparency regarding the status of the
ID Net Service as a non-guaranteed
service and how transactions processed
through the ID Net Service are handled
following a Member default; and (3)
make other changes to the Rules to
implement these proposed changes, as
described in greater detail below.3
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency 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
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
NSCC is proposing to revise its
margining methodology to remove
institutional delivery (‘‘ID’’) transactions
that are processed through the ID Net
Service from the calculation of
Members’ Required Deposits to the
Clearing Fund, as described in greater
detail below.4 While ID transactions
processed through the ID Net Service
(‘‘ID Net Transactions’’) are netted with
transactions that have been processed
through NSCC’s continuous net
3 Capitalized terms not defined herein are defined
in the Rules, available at https://dtcc.com/∼/media/
Files/Downloads/legal/rules/nscc_rules.pdf.
4 See Rule 65 (ID Net Service) and Procedure XVI
(ID Net Service) of the Rules, supra note 3.
E:\FR\FM\11AUN1.SGM
11AUN1
]]>Agencies
[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44096-44100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17089]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92585; File No. SR-Phlx-2021-39]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's
Options Regulatory Fee
August 5, 2021.
Pursuant to 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 July 30, 2021, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Phlx's Pricing Schedule at Options
7, Section 6, Part D related to the Options Regulatory Fee or ``ORF''.
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on October 1,
2021.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Currently, Phlx assesses an ORF of $0.0042 per contract side as
specified in Phlx's Pricing Schedule at Options 7, Section 6, Part D.
The Exchange proposes to waive its ORF from October 1, 2021 to January
31, 2022, and then recommence the ORF on February 1, 2022.
By way of background, the options industry has experienced
extremely high options trading volumes and volatility. This historical
anomaly of persistent increased options volumes has impacted Phlx's ORF
collection which, in turn, has caused the Exchange to continue to
revisit its financial forecast to reflect the sustained elevated
options volumes and volatility. As the Exchange continues to monitor
the amount of revenue collected from the ORF to ensure that our ORF
collection, in combination with other regulatory fees and fines, does
not exceed regulatory costs, the Exchange has found it difficult to
determine when volumes will return to more normal levels. In order to
avoid iterative rule changes to amend its ORF, the Exchange believes it
is prudent to instead waive its ORF from October 1, 2021 to January 31,
2022, to permit the Exchange to plan future forecasts without the need
to account for any ORF collection during that timeframe. This proposal
would ensure that revenue collected from the ORF, in combination with
other regulatory fees and fines, would not exceed the Exchange's total
regulatory costs. Phlx would recommence assessing its current ORF rate
of $0.0042 per contract side as of February 1, 2022. Furthermore, prior
to February 1, 2022, Phlx will examine its ORF rate to determine if the
$0.0042 per contract side ORF is justified given the current volumes in
2022 as well as the current Exchange regulatory expenses at that time.
Phlx would file a proposed rule change to amend its per contract ORF if
changes are necessary to ensure an equitable allocation of reasonable
ORF, if e.g., the Exchange believes that the volumes Phlx experiences
in the second half of 2021 are likely to persist throughout 2022. Of
note, Phlx proposes to continue to operate with the ORF fee waived in
January 2022 to allow its member organizations and other broker dealers
time to align their systems for February 1, 2022, allowing for time
after the holiday period which traditionally have year-end code freezes
in place.
Collection of ORF
Currently, Phlx assesses its ORF for each customer option
transaction that is either: (1) Executed by a member organization \3\
on Phlx; or (2) cleared by a Phlx member organization at The Options
Clearing Corporation (``OCC'') in the customer range,\4\ even if the
transaction was executed by a non-member organization of Phlx,
regardless of the exchange on which the transaction occurs.\5\
---------------------------------------------------------------------------
\3\ The term ``member organization'' means a corporation,
partnership (general or limited), limited liability partnership,
limited liability company, business trust or similar organization,
transacting business as a broker or a dealer in securities and which
has the status of a member organization by virtue of (i) admission
to membership given to it by the Membership Department pursuant to
the provisions of General 3, Sections 5 and 10 or the By-Laws or
(ii) the transitional rules adopted by the Exchange pursuant to
Section 6-4 of the By-Laws. References herein to officer or partner,
when used in the context of a member organization, shall include any
person holding a similar position in any organization other than a
corporation or partnership that has the status of a member
organization. See General 1, Section 1(17).
\4\ Participants must record the appropriate account origin code
on all orders at the time of entry of the order. The Exchange
represents that it has surveillances in place to verify that member
organizations mark orders with the correct account origin code.
\5\ The Exchange uses reports from OCC when assessing and
collecting the ORF.
---------------------------------------------------------------------------
ORF Revenue and Monitoring of ORF
The Exchange monitors the amount of revenue collected from the ORF
to ensure that it, in combination with other
[[Page 44097]]
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.
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 \6\ and member organization
customer options business including performing routine surveillances,
investigations, examinations, financial monitoring, and policy,
rulemaking, interpretive, and enforcement activities. Regulatory costs
include direct regulatory expenses and certain indirect expenses in
support of the regulatory function. The direct expenses include in-
house and third-party service provider costs to support the day-to-day
regulatory work such as surveillances, investigations and examinations.
The indirect expenses include support from such areas as Office of the
General Counsel, technology, and internal audit. Indirect expenses are
estimated to be approximately 42% of the total regulatory costs for
2021. Thus, direct expenses are estimated to be approximately 58% of
total regulatory costs for 2021.
---------------------------------------------------------------------------
\6\ The term ``member'' means a permit holder which has not been
terminated in accordance with the By-Laws and these Rules of the
Exchange. A member is a natural person and must be a person
associated with a member organization. Any references in the rules
of the Exchange to the rights or obligations of an associated person
or person associated with a member organization also includes a
member. See General 1, Section 1(16).
---------------------------------------------------------------------------
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of its members and
member organizations, including performing routine surveillances,
investigations, examinations, financial monitoring, and policy,
rulemaking, interpretive, and enforcement activities.
Proposal
Based on the Exchange's most recent review, the Exchange proposes
to waive ORF from October 1, 2021 to January 31, 2022, to help ensure
that revenue collected from the ORF, in combination with other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs. Phlx would recommence assessing its current ORF rate
of $0.0042 per contract side as of February 1, 2022. The Exchange
issued an Options Trader Alert on July 2, 2021 indicating the proposed
rate change for October 1, 2021.\7\
---------------------------------------------------------------------------
\7\ See Options Trader Alert 2021-41.
---------------------------------------------------------------------------
The proposed waiver is based on recent options volume which has
remained at abnormally and unexpectedly high levels. Options volume in
2021 remains significantly high when that volume is compared to 2019
and 2020 options volume. For example, total options contract volume in
November 2020 was 71% higher than the total options contract volume in
November 2019.\8\ Below is industry data from OCC \9\ which illustrates
the significant increase in volume during the fourth quarter of 2020.
---------------------------------------------------------------------------
\8\ See data from OCC at: https://www.businesswire.com/news/home/20201202005584/en/OCC-November-2020-Total-Volume-Up-71-Percent-From-a-Year-Ago.
\9\ See data from OCC at: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Volume-by-Account-Type.
----------------------------------------------------------------------------------------------------------------
Volume October 2020 November 2020 December 2020 Q4 2020
----------------------------------------------------------------------------------------------------------------
Total........................... 633,365,184 673,660,858 753,568,354 2,060,594,396
Customer........................ 587,707,301 630,297,252 708,037,956 1,926,042,509
Total ADV....................... 28,789,326.55 33,683,042.90 34,253,107.00 32,196,787.44
Customer ADV.................... 26,713,968.23 31,514,862.60 32,183,543.45 30,094,414.20
----------------------------------------------------------------------------------------------------------------
[[Page 44098]]
Below is industry data from OCC \10\ which illustrates the
significant increase in volume from January 2021 through March 2021.
The options volume in the first quarter of 2021 was higher than the
fourth quarter of 2020. Also, April and May 2021 volumes remain
significantly high as compared to 2020 options volume in general.
---------------------------------------------------------------------------
\10\ Id.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Volume January 2021 February 2021 March 2021 April 2021 May 2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total............................................... 838,339,790 823,412,827 898,653,388 711,388,828 718,368,993
Customer............................................ 784,399,878 782,113,450 837,247,059 667,208,963 659,913,862
Total ADV........................................... 44,123,146.84 43,337,517.20 39,071,886.40 33,875,658.50 35,918,449.70
Customer ADV........................................ 41,284,204.11 41,163,865.79 36,402,046.04 31,771,855.38 32,995,693.10
--------------------------------------------------------------------------------------------------------------------------------------------------------
As a result of the historical anomaly created by these high options
volumes, Phlx has no assurance that the Exchange's final costs for 2021
will not differ materially from these expectations and prior practice,
nor can the Exchange predict with certainty whether options volume will
remain at the current level going forward. The Exchange notes however,
that when combined with regulatory fees and fines, the revenue being
generated utilizing the current ORF rate may result in revenue in
excess of the Exchange's estimated regulatory costs for the year.
Particularly, as noted above, the options market has seen a substantial
increase in volume in 2021 as compared to 2020, due in large part to
the continued extreme volatility in the marketplace as a result of the
COVID-19 pandemic. This unprecedented spike in volatility resulted in
significantly higher volume than was originally projected by the
Exchange (thereby resulting in substantially higher ORF revenue than
projected). The Exchange therefore proposes to waive ORF from October
1, 2021 to January 31, 2022 to ensure it does not exceed its regulatory
costs for 2021. Particularly, the Exchange believes that waiving ORF
from October 1, 2021 to January 31, 2022 and considering all of the
Exchange's other regulatory fees and fines would allow the Exchange to
continue covering a material portion of its regulatory costs, while
lessening the potential for generating excess revenue that may
otherwise occur using the current rate.\11\
---------------------------------------------------------------------------
\11\ The Exchange notes that its regulatory responsibilities
with respect to member compliance with options sales practice rules
have largely been allocated to FINRA under a 17d-2 agreement. The
ORF is not designed to cover the cost of that options sales practice
regulation.
---------------------------------------------------------------------------
Phlx would recommence assessing its current ORF rate of $0.0042 per
contract side as of February 1, 2022. Until October 1, 2021, 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 regulatory costs. The Exchange would
also continue monitoring the amount of revenue collected from the ORF
when it recommences assessing ORF on February 1, 2022. If the Exchange
determines regulatory revenues exceed regulatory costs, the Exchange
will adjust the ORF by submitting a fee change filing to the Commission
and notifying \12\ its member organizations via an Options Trader
Alert.\13\
---------------------------------------------------------------------------
\12\ The Exchange will provide member organizations with such
notice at least 30 calendar days prior to the effective date of the
change.
\13\ The Exchange notes that in connection with this proposal,
it provided the Commission confidential details regarding the
Exchange's projected regulatory revenue, including projected revenue
from ORF, along with a projected regulatory expenses.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\14\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\15\ which provides that Exchange rules may provide
for the equitable allocation of reasonable dues, fees, and other
charges among its members, member organizations, and other persons
using its facilities. Additionally, the Exchange believes the proposed
rule change is consistent with the Section 6(b)(5) \16\ requirement
that the rules of an exchange not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(4).
\16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes the proposed fee waiver is reasonable because
customer transactions will be subject to no ORF from October 1, 2021 to
January 31, 2022. Moreover, the proposed waiver is necessary, so the
Exchange does not collect revenue in excess of its anticipated
regulatory costs, in combination with other regulatory fees and fines,
which is consistent with the Exchange's practices.
The Exchange designed the ORF to generate revenues that would be
less than the amount of the Exchange's regulatory costs to ensure that
it, in combination with its other regulatory fees and fines, does not
exceed regulatory costs, which is consistent with the view of the
Commission that regulatory fees be used for regulatory purposes and not
to support the Exchange's business operations. As discussed above,
however, after review of its regulatory costs and regulatory revenues,
which includes revenues from ORF and other regulatory fees and fines,
the Exchange determined that absent a reduction in ORF, it may be
collecting revenue in excess of its regulatory costs. Indeed, the
Exchange notes that when considering the recent options volume, which
included an increase in customer options transactions, it estimates the
ORF may generate revenues that may cover more than the approximated
Exchange's projected regulatory costs. As such, the Exchange believes
it's reasonable and appropriate to waive ORF from October 1, 2021 to
January 31, 2022 and recommence assessing ORF on February 1, 2022.
The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory as no member organization would be assessed
an ORF from October 1, 2021 to January 31, 2022. While the Exchange has
assessed and collected ORF from January through September, 2021, but
will not collect ORF, with this proposal, from October 2021 through
January 2022, the Exchange does not believe that it is unfairly
discriminatory to not assess the ORF from October 2021 through January
2022 because the ORF is designed and intended to recover a portion of
the Exchange's regulatory costs without collecting in excess of those
costs. Unexpectedly high and sustained customer volume has resulted in
higher revenues from the ORF that, if not suspended, will likely result
in over-collection of ORF, which would be inconsistent with the
Exchange's prior representations and undertaking to not collect ORF in
excess of regulatory expenses. Despite decreasing the
[[Page 44099]]
amount of the ORF on April 1, 2021, the Exchange did not decrease the
amount of the ORF again in 2021 because it did not expect, based on its
prior experience, that customer volume would remain abnormally high.
Also, it is equitable and not unfairly discriminatory to recommence the
assessment of the ORF on February 1, 2022 because assessing the ORF to
each member organization for options transactions cleared by OCC in the
customer range where the execution occurs on another exchange and is
cleared by aa Phlx member organization is an equitable allocation of
reasonable dues, fees, and other charges among its members and issuers
and other persons using its facilities.\17\
---------------------------------------------------------------------------
\17\ If the OCC clearing member is a Phlx member organization,
ORF is assessed and collected on all cleared customer contracts
(after adjustment for CMTA); and (2) if the OCC clearing member is
not a Phlx member organization, ORF is collected only on the cleared
customer contracts executed at Phlx, taking into account any CMTA
instructions which may result in collecting the ORF from a non-
member organization.
---------------------------------------------------------------------------
The Exchange believes recommencing the ORF on February 1, 2022 at
the same rate, unless options volumes at that time warrant a proposed
rule change, continues to ensure fairness by assessing higher fees to
those member organizations that require more Exchange regulatory
services based on the amount of customer options business they conduct.
As noted in prior ORF rule changes which set the current ORF rate of
$0.0042 per contract side, 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. For example,
there are costs associated with main office and branch office
examinations (e.g., staff expenses), as well as investigations into
customer complaints and the terminations of registered persons.\18\
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 91418 (March 26,
2021), 86 FR 17254 (April 1, 2021) (SR-Phlx-2021-16) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Phlx's Pricing Schedule at Options 7, Section 6, Part D To Reduce
the Phlx Options Regulatory Fee). The Exchange also noted in this
rule change that, ``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
organization proprietary transactions) of its regulatory program.
Moreover, the Exchange notes that it has broad regulatory
responsibilities with respect to activities of its member
organizations, irrespective of where their transactions take place.
Many of the Exchange's surveillance programs for customer trading
activity may require the Exchange to look at activity across all
markets, such as reviews related to position limit violations and
manipulation. Indeed, the Exchange cannot effectively review for
such conduct without looking at and evaluating activity regardless
of where it transpires. In addition to its own surveillance
programs, the Exchange also works with other SROs and exchanges on
intermarket surveillance related issues. Through its participation
in the Intermarket Surveillance Group (``ISG'') the Exchange shares
information and coordinates inquiries and investigations with other
exchanges designed to address potential intermarket manipulation and
trading abuses. Accordingly, there is a strong nexus between the ORF
and the Exchange's regulatory activities with respect to customer
trading activity of its member organizations.'' See 86 FR 17256-7.
---------------------------------------------------------------------------
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. The Exchange does not believe
that this proposal creates an unnecessary or inappropriate intra-market
or inter-market burden on competition for several reasons. First, ORF
has been amended several times since its inception in 2009.\19\ For
example, most recently on April 1, 2021, Phlx amended its ORF rate from
$0.0050 to $0.0042 per contract side as of April 1, 2021. Member
organizations who either executed a transaction on Phlx or cleared a
transaction at OCC in the customer range would have been assessed a
higher ORF for a transaction executed on Phlx on March 31, 2021
($0.0050 per contract side) as compared to April 1, 2021 ($0.0042 per
contract side). There have been other ORF amendments prior to 2021
which have caused Phlx to assess different ORF rates to member
organizations for different time periods causing member organizations
to have paid different ORFs since 2009. Second, Phlx's regulatory costs
have varied over time. For example, if Phlx received payment of a fine
from a disciplinary action, that fine would offset regulatory costs and
would cause Phlx to require less regulatory revenue for a particular
period. The changing regulatory costs would impact the ORF assessed by
Phlx to member organizations. In the past, the Exchange has amended ORF
to be higher or lower,\20\ thereby impacting the amount paid by member
organizations in a calendar year. Third, options markets assess ORF at
different rates. For instance, today, Nasdaq MRX, LLC (``MRX'')
assesses a lower ORF of $0.0004 per contract side.\21\ MRX has assessed
this rate since February 1, 2019.\22\ Depending on where a customer
order is executed, a member organization could be assessed a much
different ORF. For example, in the case where a customer order is sent
to Phlx and routed to MRX, and a non-member organization cleared that
transaction, the Phlx ORF of $0.0042 would not be assessed to the
member organization who executed the transaction or cleared the
transaction, rather the MRX rate of $0.0004 per contract side would be
assessed. In that same scenario presuming a non-member organization
cleared the transaction, if the customer order could have executed on
Phlx instead of routing away the member organization would have been
assessed the Phlx ORF of $0.0042 per contract side. The customer, in
that instance, would have no knowledge of where the order could be
executed, as the liquidity profile of each exchange may differ at that
exact moment. Therefore, member organizations could be assessed a
different ORF on the same day on the same transaction based on routing
decisions, and in those cases the member organization would continue to
benefit from the regulatory program available on each market and
discover where the liquidity is available, irrespective of any ORF rate
differentials across markets.
---------------------------------------------------------------------------
\19\ See Securities Exchange Act Release Nos. 61133 (December 9,
2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-100); 1529
(February 17, 2010), 75 FR 8421 (February 24, 2010) (SR-Phlx-2010-
17); 62619 (July 30, 2010), 75 FR 47874 (August 9, 2010) (SR-Phlx-
2010-100); 63436 (December 6, 2010), 75 FR 77021 (December 10, 2010)
(SR-Phlx-2010-166); 65897 (December 6, 2011), 76 FR 77277 (December
12, 2011) (SR-Phlx-2011-163); 66664 (March 27, 2012), 77 FR 19743
(April 2, 2012) (SR-Phlx-2012-36); 71569 (February 19, 2014), 79 FR
10593 (February 25, 2014) (SR-Phlx-2014-12); 75749 (August 21,
2015), 80 FR 52073 (August 27, 2017) (SR-Phlx-2015-71); 77032
(February 2, 2016), 81 FR 6560 (February 8, 2016) (SR-Phlx-2016-04);
and 79751 (January 6, 2017), 82 FR 3826 (January 12, 2017) (SR-Phlx-
2017-02); 81343 (August 8, 2017), 82 FR 37964 (August 14, 2017) (SR-
Phlx-2017-54); and 85125 (February 13, 2019), 84 FR 5171 (February
20, 2019) (SR-Phlx-2019-01).
\20\ Id.
\21\ See Securities Exchange Act Release Nos. 85127 (February
13, 2019), 84 FR 5173 (February 20, 2019) (SR-MRX-2019-03).
\22\ Of note, prior to February 1, 2019, MRX assessed no ORF
thereby creating a calendar year where member organizations were
assessed no ORF for a period similar to what is proposed.
---------------------------------------------------------------------------
The Exchange believes recommencing the ORF on February 1, 2022 at
the same rate, unless options volumes or the Exchange's regulatory
expenses at that time warrant a proposed rule change, does not create
an undue 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. Recommencing the assessment of the current ORF does
not create an unnecessary or inappropriate inter-market burden on
competition
[[Page 44100]]
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
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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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-Phlx-2021-39 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-Phlx-2021-39. 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-Phlx-2021-39, and should be submitted on or
before September 1, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-17089 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P
