Self-Regulatory Organizations: MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adjust the Options Regulatory Fee, 58315-58319 [2021-22940]
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Federal Register / Vol. 86, No. 201 / Thursday, October 21, 2021 / Notices
permanent proposal for clearly
erroneous execution reviews. For this
reason, the Commission hereby waives
the 30-day operative delay and
designates the proposed rule change as
operative upon filing.23
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
change should be approved or
disapproved.
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
Number SR–NYSECHX–2021–15 and
should be submitted on or before
November 12, 2021.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
J. Matthew DeLesDernier,
Assistant Secretary.
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 Number SR–
NYSECHX–2021–15 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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
Number SR–NYSECHX–2021–15. 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
23 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
[Release No. 34–93367; File No. SR–
EMERALD–2021–33]
Self-Regulatory Organizations: MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Fee
Schedule To Adjust the Options
Regulatory Fee
October 15, 2021.
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 October
7, 2021, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ or ‘‘Exchange’’) 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
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 Exchange’s Fee Schedule
(‘‘Fee Schedule’’) to adjust the Options
Regulatory Fee (‘‘ORF’’).
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Currently, the Exchange assesses ORF
in the amount of $0.00060 per contract
side. The Exchange proposes to increase
the amount of ORF from $0.00060 per
contract side to $0.0016 per contract
side. The Exchange initially filed this
proposal on July 30, 2021 (SR–
EMERALD–2021–24) and withdrew
such filing on August 12, 2021. The
Exchange refiled this proposal on
August 12, 2021 (SR–EMERALD–2021–
27) and withdrew such filing on October
7, 2021. The Exchange proposes to
implement this fee change effective
October 7, 2021.
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 proposes 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
Exchange will continue to monitor ORF
to ensure that revenue collected from
the ORF, in combination with other
regulatory fees and fines, does not
exceed the Exchange’s total regulatory
costs.
The Exchange notes it originally
adopted the current ORF amount at a
significantly lower rate as the Exchange
had just begun operations and that the
amount of ORF it collects has remain
unchanged since it was first adopted in
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2019.3 When the Exchange set the
amount of its current ORF (almost 21⁄2
years ago), it was a brand new
marketplace, and the amount was based
on cost and revenue projections that
were applicable to a new market. As
such, the Exchange’s cost structure,
including regulatory costs and
projections, were significantly lower.
The Exchange’s regulatory cost structure
has since significantly increased since
that time, as the Exchange has had to
deploy significant resources and capital
as the Exchange’s membership base,
volume, and market share have grown.
The increase in cost structure has
outgrown any revenue increase as a
result of higher volumes. Therefore, the
Exchange believes it is reasonable to
increase the amount of ORF assessed to
Members,4 notwithstanding the fact that
ORF revenues have also grown as a
result of increased volumes. To
illustrate, for the first six months of
2021, the Exchange had market share of
3.50% in multi-listed options.5 The
Exchange now proposes to adjust the
amount of its ORF to be in line with
those of more mature, established
exchanges, as its regulatory cost
structure has shifted from that of a
nascent exchange to a more mature
exchange.
Collection of ORF
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Currently, the Exchange assesses the
per-contract ORF to each 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,6
regardless of the exchange on which the
transaction occurs. The ORF is collected
by OCC on behalf of the Exchange 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
3 See Securities Exchange Act Release No. 85251
(March 6, 2019), 84 FR 8931 (March 12, 2019) (SR–
EMERALD–2019–01).
4 The term ‘‘Member’’ means an individual or
organization approved to exercise the trading rights
associated with a Trading Permit. Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100. See the Definitions Section of
the Fee Schedule and Exchange Rule 100.
5 See https://www.miaxoptions.com/sites/default/
files/press_release-files/MIAX_Press_Release_
07132021.pdf.
6 Exchange participants must record the
appropriate account origin code on all orders at the
time of entry in order. The Exchange represents that
it has surveillances in place to verify that Members
mark orders with the correct account origin code.
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identity of the executing clearing firm
and ultimate clearing firm.
To illustrate how the Exchange
assesses and collects ORF, the Exchange
provides the following set of examples.
For a transaction that 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’’ 7
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 does 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 does 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, MIAX PEARL, LLC
7 ‘‘CMTA’’ or Clearing Member Trade Assignment
is a form of ‘‘give-up’’ whereby the position will be
assigned to a specific clearing firm at OCC.
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(‘‘MIAX Pearl’’) and Miami International
Securities Exchange, LLC (‘‘MIAX’’).8
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,
and such participants can make changes
to the market centers to which they
connect, including dropping their
connection to one market center and
establishing themselves as participants
on another. For these reasons, it is not
possible for the Exchange to identify,
and thus assess fees such as 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.
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
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,
8 See Securities Exchange Act Release Nos. 85163
(February 15, 2019), 84 FR 5798 (February 22, 2019)
(SR–PEARL–2019–01); 85162 (February 15, 2019),
84 FR 5783 (February 22, 2019) (SR–MIAX–2019–
01).
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front-running, contrary exercise advice
violations and insider trading. These
activities span across multiple
exchanges.
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
Members’ 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 the
Office of the General Counsel,
technology, and internal audit. Indirect
expenses are estimated to be
approximately 53% of the total
regulatory costs for 2021. Thus, direct
expenses are estimated to be
approximately 47% of total regulatory
costs for 2021. The Exchange notes that
its estimated direct and indirect expense
percentages are in the range and similar
to those at other options exchanges.9
The ORF is designed to recover a
material portion of the costs to the
Exchange of the supervision and
regulation of its members, including
performing routine surveillances,
investigations, examinations, financial
monitoring, and policy, rulemaking,
interpretive, and enforcement activities.
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Proposal
Based on the Exchange’s most recent
review, the Exchange proposes to
increase the amount of ORF that will be
collected by the Exchange from
$0.00060 per contract side to $0.0016
per contract side. The Exchange issued
an Options Regulatory Fee
Announcement on July 2, 2021,
indicating the proposed rate change for
August 1, 2021.10 As described above,
when the Exchange set the amount of its
current ORF (almost 21⁄2 years ago), it
9 See Securities Exchange Act Release Nos. 91418
(March 26, 2021), 86 FR 17254 (April 1, 2021) (SR–
Phlx–2021–16) (reducing the Nasdaq PHLX LLC
ORF and estimating direct expenses at 58% and
indirect expenses at 42%); 91420 (March 26, 2021),
86 FR 17223 (April 1, 2021) (SR–ISE–2021–04)
(reducing the Nasdaq ISE, LLC ORF and estimating
direct expenses at 58% and indirect expenses at
42%).
10 See https://www.miaxoptions.com/sites/
default/files/circular-files/MIAX_Emerald_RC_
2021_33.pdf.
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was a brand new marketplace, and the
amount was based on cost and revenue
projections that were applicable to a
new market. At that time, the
Exchange’s cost structure, including
regulatory costs and projections, were
significantly lower. The Exchange’s
regulatory cost structure has since
significantly increased since that time,
as the Exchange has had to deploy
significant resources and capital as the
Exchange’s membership base, volume,
and market share have grown. The
increase in cost structure has outgrown
any revenue increase as a result of
higher volumes. The Exchange believes
the proposed adjustment will permit the
Exchange to cover a material portion of
its regulatory costs, while not exceeding
regulatory costs; notwithstanding the
fact that ORF revenues have also grown
as a result of increased volumes. 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.
There can be 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 results in revenue that is
running below the Exchange’s estimated
regulatory costs for the year.
Particularly, as noted above, the
Exchange initially set its ORF at a
substantially lower rate when the
Exchange first launched operations.11
The Exchange now believes that it is
appropriate to increase the amount of
the ORF so that it is in line with the
Exchange’s cost structure for operating a
more established exchange, so that
when combined with all of the
Exchange’s other regulatory fees and
fines, it would allow the Exchange to
recover a material portion of its
regulatory costs, while continuing to not
generate excess revenue.12
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
11 See
supra note 3.
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.
12 The
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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.
In connection with this filing, the
Exchange notes that its affiliates, MIAX
Pearl and MIAX, will also be adjusting
the ORF fees that each of those
exchanges charge.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 13
in general, and furthers the objectives of
Section 6(b)(4) of the Act 14 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 15 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 $0.0016 per
contract side 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, with an exception.16 Moreover,
the Exchange believes the ORF ensures
fairness by assessing fees to Members
such that the ORF assessment is directly
based on the amount of customer
options business each Member
conducts. 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
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
15 15 U.S.C. 78f(b)(5).
16 When a 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).
14 15
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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 Exchange notes it originally
adopted the current ORF amount at a
significantly lower rate as the Exchange
had just begun operations and that the
amount of ORF it collects has remain
unchanged since it was first adopted in
2019.17 When the Exchange set the
amount of its current ORF (almost 21⁄2
years ago), it was a brand new
marketplace, and the amount was based
on cost and revenue projections that
were applicable to a new market. As
such, the Exchange’s cost structure,
including regulatory costs and
projections, were significantly lower.
The Exchange’s regulatory cost structure
has since significantly increased since
that time, as the Exchange has had to
deploy significant resources and capital
as the Exchange’s membership base,
volume, and market share have grown.
The increase in cost structure has
outgrown any revenue increase as a
result of higher volumes. Therefore, the
Exchange believes it is reasonable,
equitable and not unfairly
discriminatory to increase the amount of
ORF assessed to Members,
notwithstanding the fact that ORF
revenues have also grown as a result of
increased volumes.
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
17 See
supra note 3.
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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
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.
The Exchange designed the ORF so
that revenue generated from the ORF, 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.
The Exchange also believes the
proposed fee change is equitable and
not unfairly discriminatory in that it is
charged to all Members on all their
transactions that clear in the customer
range at the OCC, with an exception.18
18 See
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The Exchange believes the ORF ensures
fairness by assessing higher fees to those
members that require more Exchange
regulatory services 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. 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. 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. Moreover, the
Exchange notes that it has broad
regulatory responsibilities with respect
to activities of its Members, 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’’) 19 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 Members.
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
19 ISG is an industry organization formed in 1983
to coordinate intermarket surveillance among the
SROs by cooperatively 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.
E:\FR\FM\21OCN1.SGM
21OCN1
Federal Register / Vol. 86, No. 201 / Thursday, October 21, 2021 / Notices
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, thereby raising
regulatory revenue to offset regulatory
expenses. It also supplements the
regulatory revenue derived from noncustomer activity. The Exchange notes,
however, the proposed change is not
designed to address any competitive
issues. Indeed, 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.
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,20 and Rule
19b–4(f)(2) 21 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
jspears on DSK121TN23PROD with NOTICES1
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:
• Send an email to rule-comments@
sec.gov. Please include File No. SR–
EMERALD–2021–33 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–93358; File No. SR–MEMX–
2021–13]
• 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–2021–33. 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–2021–33, and should be
submitted on or before November 12,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–22940 Filed 10–20–21; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Extend the Pilot Related to
Clearly Erroneous Transactions Until
April 20, 2022
October 15, 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 October
14, 2021, MEMX LLC (‘‘MEMX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 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 with the
Commission a proposed rule change to
extend the current pilot program related
to MEMX Rule 11.15, ‘‘Clearly
Erroneous Executions,’’ to the close of
business on April 20, 2022. The text of
the proposed rule change is provided in
Exhibit 5.
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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
20 15
21 17
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
VerDate Sep<11>2014
17:35 Oct 20, 2021
22 17
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PO 00000
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 86, Number 201 (Thursday, October 21, 2021)]
[Notices]
[Pages 58315-58319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22940]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93367; File No. SR-EMERALD-2021-33]
Self-Regulatory Organizations: MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule To Adjust the Options Regulatory Fee
October 15, 2021.
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 October 7, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or
``Exchange'') 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 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 is filing a proposal to amend the Exchange's Fee
Schedule (``Fee Schedule'') to adjust the 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
Currently, the Exchange assesses ORF in the amount of $0.00060 per
contract side. The Exchange proposes to increase the amount of ORF from
$0.00060 per contract side to $0.0016 per contract side. The Exchange
initially filed this proposal on July 30, 2021 (SR-EMERALD-2021-24) and
withdrew such filing on August 12, 2021. The Exchange refiled this
proposal on August 12, 2021 (SR-EMERALD-2021-27) and withdrew such
filing on October 7, 2021. The Exchange proposes to implement this fee
change effective October 7, 2021.
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 proposes 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 Exchange will continue to
monitor ORF to ensure that revenue collected from the ORF, in
combination with other regulatory fees and fines, does not exceed the
Exchange's total regulatory costs.
The Exchange notes it originally adopted the current ORF amount at
a significantly lower rate as the Exchange had just begun operations
and that the amount of ORF it collects has remain unchanged since it
was first adopted in
[[Page 58316]]
2019.\3\ When the Exchange set the amount of its current ORF (almost
2\1/2\ years ago), it was a brand new marketplace, and the amount was
based on cost and revenue projections that were applicable to a new
market. As such, the Exchange's cost structure, including regulatory
costs and projections, were significantly lower. The Exchange's
regulatory cost structure has since significantly increased since that
time, as the Exchange has had to deploy significant resources and
capital as the Exchange's membership base, volume, and market share
have grown. The increase in cost structure has outgrown any revenue
increase as a result of higher volumes. Therefore, the Exchange
believes it is reasonable to increase the amount of ORF assessed to
Members,\4\ notwithstanding the fact that ORF revenues have also grown
as a result of increased volumes. To illustrate, for the first six
months of 2021, the Exchange had market share of 3.50% in multi-listed
options.\5\ The Exchange now proposes to adjust the amount of its ORF
to be in line with those of more mature, established exchanges, as its
regulatory cost structure has shifted from that of a nascent exchange
to a more mature exchange.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 85251 (March 6,
2019), 84 FR 8931 (March 12, 2019) (SR-EMERALD-2019-01).
\4\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100. See the Definitions Section of the Fee Schedule
and Exchange Rule 100.
\5\ See https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_07132021.pdf.
---------------------------------------------------------------------------
Collection of ORF
Currently, the Exchange assesses the per-contract ORF to each
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,\6\ regardless
of the exchange on which the transaction occurs. The ORF is collected
by OCC on behalf of the Exchange 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.
---------------------------------------------------------------------------
\6\ Exchange participants must record the appropriate account
origin code on all orders at the time of entry in order. The
Exchange represents that it has surveillances in place to verify
that Members mark orders with the correct account origin code.
---------------------------------------------------------------------------
To illustrate how the Exchange assesses and collects ORF, the
Exchange provides the following set of examples. For a transaction that
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'' \7\ 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 does 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 does 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, MIAX PEARL, LLC (``MIAX Pearl'') and Miami
International Securities Exchange, LLC (``MIAX'').\8\
---------------------------------------------------------------------------
\7\ ``CMTA'' or Clearing Member Trade Assignment is a form of
``give-up'' whereby the position will be assigned to a specific
clearing firm at OCC.
\8\ See Securities Exchange Act Release Nos. 85163 (February 15,
2019), 84 FR 5798 (February 22, 2019) (SR-PEARL-2019-01); 85162
(February 15, 2019), 84 FR 5783 (February 22, 2019) (SR-MIAX-2019-
01).
---------------------------------------------------------------------------
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, and such participants can make changes to the market
centers to which they connect, including dropping their connection to
one market center and establishing themselves as participants on
another. For these reasons, it is not possible for the Exchange to
identify, and thus assess fees such as 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.
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 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,
[[Page 58317]]
front-running, contrary exercise advice violations and insider trading.
These activities span across multiple exchanges.
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 Members' 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 the Office of the General
Counsel, technology, and internal audit. Indirect expenses are
estimated to be approximately 53% of the total regulatory costs for
2021. Thus, direct expenses are estimated to be approximately 47% of
total regulatory costs for 2021. The Exchange notes that its estimated
direct and indirect expense percentages are in the range and similar to
those at other options exchanges.\9\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release Nos. 91418 (March 26,
2021), 86 FR 17254 (April 1, 2021) (SR-Phlx-2021-16) (reducing the
Nasdaq PHLX LLC ORF and estimating direct expenses at 58% and
indirect expenses at 42%); 91420 (March 26, 2021), 86 FR 17223
(April 1, 2021) (SR-ISE-2021-04) (reducing the Nasdaq ISE, LLC ORF
and estimating direct expenses at 58% and indirect expenses at 42%).
---------------------------------------------------------------------------
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of its members,
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 increase the amount of ORF that will be collected by the Exchange
from $0.00060 per contract side to $0.0016 per contract side. The
Exchange issued an Options Regulatory Fee Announcement on July 2, 2021,
indicating the proposed rate change for August 1, 2021.\10\ As
described above, when the Exchange set the amount of its current ORF
(almost 2\1/2\ years ago), it was a brand new marketplace, and the
amount was based on cost and revenue projections that were applicable
to a new market. At that time, the Exchange's cost structure, including
regulatory costs and projections, were significantly lower. The
Exchange's regulatory cost structure has since significantly increased
since that time, as the Exchange has had to deploy significant
resources and capital as the Exchange's membership base, volume, and
market share have grown. The increase in cost structure has outgrown
any revenue increase as a result of higher volumes. The Exchange
believes the proposed adjustment will permit the Exchange to cover a
material portion of its regulatory costs, while not exceeding
regulatory costs; notwithstanding the fact that ORF revenues have also
grown as a result of increased volumes. 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.
---------------------------------------------------------------------------
\10\ See https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2021_33.pdf.
---------------------------------------------------------------------------
There can be 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 results in revenue that is
running below the Exchange's estimated regulatory costs for the year.
Particularly, as noted above, the Exchange initially set its ORF at a
substantially lower rate when the Exchange first launched
operations.\11\ The Exchange now believes that it is appropriate to
increase the amount of the ORF so that it is in line with the
Exchange's cost structure for operating a more established exchange, so
that when combined with all of the Exchange's other regulatory fees and
fines, it would allow the Exchange to recover a material portion of its
regulatory costs, while continuing to not generate excess revenue.\12\
---------------------------------------------------------------------------
\11\ See supra note 3.
\12\ 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.
In connection with this filing, the Exchange notes that its
affiliates, MIAX Pearl and MIAX, will also be adjusting the ORF fees
that each of those exchanges charge.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \13\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \14\ 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 \15\ 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.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4).
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that increasing the ORF from $0.00060 to
$0.0016 per contract side 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, with an exception.\16\ Moreover, the Exchange believes the ORF
ensures fairness by assessing fees to Members such that the ORF
assessment is directly based on the amount of customer options business
each Member conducts. 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
[[Page 58318]]
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.
---------------------------------------------------------------------------
\16\ When a 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).
---------------------------------------------------------------------------
The Exchange notes it originally adopted the current ORF amount at
a significantly lower rate as the Exchange had just begun operations
and that the amount of ORF it collects has remain unchanged since it
was first adopted in 2019.\17\ When the Exchange set the amount of its
current ORF (almost 2\1/2\ years ago), it was a brand new marketplace,
and the amount was based on cost and revenue projections that were
applicable to a new market. As such, the Exchange's cost structure,
including regulatory costs and projections, were significantly lower.
The Exchange's regulatory cost structure has since significantly
increased since that time, as the Exchange has had to deploy
significant resources and capital as the Exchange's membership base,
volume, and market share have grown. The increase in cost structure has
outgrown any revenue increase as a result of higher volumes. Therefore,
the Exchange believes it is reasonable, equitable and not unfairly
discriminatory to increase the amount of ORF assessed to Members,
notwithstanding the fact that ORF revenues have also grown as a result
of increased volumes.
---------------------------------------------------------------------------
\17\ See supra note 3.
---------------------------------------------------------------------------
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 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.
The Exchange designed the ORF so that revenue generated from the
ORF, 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.
The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory in that it is charged to all Members on all
their transactions that clear in the customer range at the OCC, with an
exception.\18\ The Exchange believes the ORF ensures fairness by
assessing higher fees to those members that require more Exchange
regulatory services 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. 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. 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. Moreover, the
Exchange notes that it has broad regulatory responsibilities with
respect to activities of its Members, 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'') \19\ 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 Members.
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\18\ See supra note 16.
\19\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by cooperatively
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.
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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
[[Page 58319]]
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, thereby raising regulatory revenue to offset regulatory
expenses. It also supplements the regulatory revenue derived from non-
customer activity. The Exchange notes, however, the proposed change is
not designed to address any competitive issues. Indeed, 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.
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,\20\ and Rule 19b-4(f)(2) \21\ 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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\20\ 15 U.S.C. 78s(b)(3)(A)(ii).
\21\ 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-2021-33 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-2021-33. 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-2021-33, and should be submitted on
or before November 12, 2021.
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\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22940 Filed 10-20-21; 8:45 am]
BILLING CODE 8011-01-P
