Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Reduce GEMX's Options Regulatory Fee, 5545-5548 [2022-01967]
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Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices
Trust. The proposed rule change was
published for comment in the Federal
Register on December 27, 2021.3 On
January 24, 2022, the Exchange
withdrew the proposed rule change
(SR–CBOE–2021–075).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.4
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–01971 Filed 1–31–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94069; File No. SR–GEMX–
2022–03]
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Reduce GEMX’s
Options Regulatory Fee
January 26, 2022.
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 January
20, 2022, Nasdaq GEMX, LLC (‘‘GEMX’’
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 Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
GEMX’s Pricing Schedule at Options 7,
Section 5 to reduce the GEMX Options
Regulatory Fee or ‘‘ORF’’.
While the changes proposed herein
are effective upon filing, the Exchange
has designated the amendments become
operative on February 1, 2022.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/gemx/rules at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
3 See Securities Exchange Act Release No. 93831
(December 20, 2021), 86 FR 73353.
4 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
GEMX previously filed to waive its
ORF from October 1, 2021 through
January 31, 2022.3 The Waiver Filing
provided that GEMX would continue
monitoring the amount of revenue
collected from the ORF to determine if
regulatory revenues would exceed
regulatory costs when it recommenced
assessing ORF on February 1, 2022. If
so, the Exchange committed to adjust its
ORF.4 At this time, after a review of its
regulatory revenues and regulatory
costs, the Exchange proposes to reduce
the ORF from $0.0018 (the amount of
the ORF prior to the waiver) to $0.0014
per contract side as of February 1, 2022,
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 options industry continues to
experience high options trading
volumes and volatility. At this time,
GEMX believes that the options volume
it experienced in the second half of
2021 is likely to persist into 2022. The
anticipated options volume would
impact GEMX’s ORF collection which,
in turn, has caused GEMX to propose
reducing the ORF to ensure that revenue
collected from the ORF, in combination
with other regulatory fees and fines,
would not exceed the Exchange’s total
regulatory costs.
3 See Securities Exchange Act Release No. 92698
(August 18, 2021), 86 FR 47355 (August 24, 2021)
(SR–GEMX–2021–08) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
to Amend GEMX’s Options Regulatory Fee)
(‘‘Waiver Filing’’).
4 Id. at 47357.
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5545
Collection of ORF
Upon recommencement of the ORF on
February 1, 2022,5 GEMX will assess its
ORF for each customer option
transaction that is either: (1) Executed
by a Member on GEMX; or (2) cleared
by an GEMX Member at The Options
Clearing Corporation (‘‘OCC’’) in the
customer range,6 even if the transaction
was executed by a non-Member of
GEMX, regardless of the exchange on
which the transaction occurs.7 If the
OCC clearing member is a GEMX
Member, ORF is assessed and collected
on all cleared customer contracts (after
adjustment for CMTA 8); and (2) if the
OCC clearing member is not a GEMX
Member, ORF is collected only on the
cleared customer contracts executed at
GEMX, taking into account any CMTA
instructions which may result in
collecting the ORF from a non-Member.9
In the case where a Member both
executes a transaction and clears the
transaction, the ORF will be assessed to
and collected from that Member. In the
case where a Member executes a
transaction and a different Member
clears the transaction, the ORF will be
assessed to and collected from the
Member who clears the transaction and
not the Member who executes the
transaction. In the case where a nonMember executes a transaction at an
away market and a Member clears the
transaction, the ORF will be assessed to
and collected from the Member who
clears the transaction. In the case where
a Member executes a transaction on
GEMX and a non-Member clears the
transaction, the ORF will be assessed to
the Member that executed the
transaction on GEMX and collected
from the non-Member who cleared the
transaction. In the case where a Member
5 Prior to the Waiver Filing, the Exchange
similarly collected ORF as described herein.
6 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 members
mark orders with the correct account origin code.
7 The Exchange uses reports from OCC when
assessing and collecting the ORF.
8 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.
9 By way of example, if Broker A, a GEMX
Member, routes a customer order to CBOE and the
transaction executes on CBOE and clears in Broker
A’s OCC Clearing account, ORF will be collected by
GEMX from Broker A’s clearing account at OCC via
direct debit. While this transaction was executed on
a market other than GEMX, it was cleared by a
GEMX Member in the member’s OCC clearing
account in the customer range, therefore there is a
regulatory nexus between GEMX and the
transaction. If Broker A was not a GEMX Member,
then no ORF should be assessed and collected
because there is no nexus; the transaction did not
execute on GEMX nor was it cleared by a GEMX
Member.
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Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices
executes a transaction at an away
market and a non-Member clears the
transaction, the ORF will not be
assessed to the Member who executed
the transaction or collected from the
non-Member who cleared the
transaction because the Exchange does
not have access to the data to make
absolutely certain that ORF should
apply. Further, the data does not allow
the Exchange to identify the Member
executing the trade at an away market.
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
Total Contracts
the total regulatory costs for 2021. Thus,
direct expenses were approximately
62% of total regulatory costs for 2021.10
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 is proposing to
reduce the amount of ORF that will be
collected by the Exchange from $0.0018
per contract side to $0.0014 per contract
side. The Exchange issued an Options
Trader Alert on December 31, 2021
indicating the proposed rate change for
February 1, 2022.11
The proposed reduction is based on a
sustained high level of options volume
in 2021. The below table displays
average daily volume for 2021.12
CUstomer Sides TradingDays QuarterContrads QuartefCUstSides QuarterAOC QuarterCust:ADS
Jan 2021
838,339,790
184,399,818
Feb2021
823,413,002
Mar2021
898,653,388
Apr2021
111,388,828
182,lli,450
831,247,059
651,208,963
19
19
May:2021
118,368,993
659,913,862
Jun 2021
866,099,522
809,242,842
22
Jul2021
790,038,364
729,239,647
Aug2021
801,578,019
741,111,748
Sep2021
811,458,905
744,936,837
Ort:2021
821,102,002
760,524,395
21
22
21
21
Nov2021
944,355,975
866,102,667
21
Dec:2021
561,154,417
503,350,410
13
23
2.,560,406,180
2,403,760,387
41,,n,an
39,405,!IOB
2,295,851,343
2,136,365,667
36,442,:ll!O
33,910,566
2,403,075,348
2,215,288,232
31,548,052
34,613,819
2,326,612,394
2,129,971,532
42,302,044
38,126,864
21
20
To date, fourth quarter options
average daily volume in 2021 has been
higher than options average daily
volume in any of the prior three quarters
of 2021. With respect to customer
options volume across the industry,
total customer options contract average
daily volume, to date, in 2021 is
36,565,398 as compared to total
customer options contract average daily
volume in 2020 which was
27,002,511.13
There can be no assurance that the
Exchange’s costs for 2022 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
that may be generated utilizing an ORF
rate of $0.0018 per contract side may
result in revenue which exceeds the
Exchange’s estimated regulatory costs
for 2022 if options volume persists. In
2021, options volume remained high,
due in large part to the extreme
volatility in the marketplace as a result
of the COVID–19 pandemic. The
Exchange therefore proposes to reduce
its ORF to $0.0014 per contract side to
ensure that revenue does not exceed the
Exchange’s estimated regulatory costs in
2022. Particularly, the Exchange
believes that reducing the ORF when
combined with 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 rate of
$0.0018 per contract side.14
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. 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
10 The Exchange will set a 2022 Regulatory
Budget in the first quarter of 2022.
11 See Options Trader Alert 2021–63.
12 The OCC data from December 2021 numbers
reflect only 13 trading days as this information is
through December 17, 2021. Volume data in the
table represents numbers of contracts; each contract
has two sides.
13 See data from OCC at: https://www.theocc.com/
Market-Data/Market-Data-Reports/Volume-andOpen-Interest/Volume-by-Account-Type.
14 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.
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Date
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 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 thirdparty 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 were approximately 38% of
Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices
notifying 15 its Members via an Options
Trader Alert.16
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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.17 Specifically,
the Exchange believes the proposed rule
change is consistent with Section 6(b)(4)
of the Act,18 which provides that
Exchange rules may provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
members, and other persons using its
facilities. Additionally, the Exchange
believes the proposed rule change is
consistent with the Section 6(b)(5) 19
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 change is reasonable because
customer transactions will be subject to
a lower ORF fee than the rate that would
otherwise be in effect on February 1,
2022. Moreover, the proposed reduction
is necessary for the Exchange to avoid
collecting revenue, in combination with
other regulatory fees and fines, that
would be in excess of its anticipated
regulatory costs 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 collect
revenue which would exceed its
regulatory costs. Indeed, the Exchange
notes that when taking into account the
potential that recent options volume
15 The Exchange will provide Members with such
notice at least 30 calendar days prior to the effective
date of the change.
16 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.
17 15 U.S.C. 78f(b).
18 15 U.S.C. 78f(b)(4).
19 15 U.S.C. 78f(b)(5).
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persists, it estimates the ORF may
generate revenues that would cover
more than the approximated Exchange’s
projected regulatory costs. As such, the
Exchange believes it’s reasonable and
appropriate to reduce the ORF amount
from $0.0018 to $0.0014 per contract
side.
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 OCC.20 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
If the OCC clearing member is a GEMX
member, ORF is assessed and collected on all
cleared customer contracts (after adjustment for
CMTA); and (2) if the OCC clearing member is not
a GEMX member, ORF is collected only on the
cleared customer contracts executed at GEMX,
taking into account any CMTA instructions which
may result in collecting the ORF from a nonmember.
20
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5547
(‘‘ISG’’) 21 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
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
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 has become
effective pursuant to Section 19(b)(3)(A)
of the Act 22 and paragraph (f) of Rule
19b–4 23 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
21 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.
22 15 U.S.C. 78s(b)(3)(A).
23 17 CFR 240.19b–4(f).
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Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices
tkelley on DSK125TN23PROD with NOTICE
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
submitted on or before February 22,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
J. Matthew DeLesDernier,
Assistant Secretary.
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:
[FR Doc. 2022–01967 Filed 1–31–22; 8:45 am]
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–
GEMX–2022–03 on the subject line.
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Designation of Longer Period for
Commission Action on a Proposed
Rule Change To Enhance Capital
Requirements and Make Other
Changes
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–GEMX–2022–03. 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–GEMX–2022–03, and should be
January 26, 2022.
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94067; File No. SR–DTC–
2021–017]
On December 13, 2021, The
Depository Trust Company (‘‘DTC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–DTC–2021–017 (the
‘‘Proposed Rule Change’’) pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2 The Proposed Rule
Change was published for comment in
the Federal Register on December 29,
2021,3 and the Commission received no
comment letters regarding the changes
proposed in the Proposed Rule Change.
Section 19(b)(2) of the Act 4 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for the
Proposed Rule Change is February 12,
2022.
The Commission is extending the 45day period for Commission action on
the Proposed Rule Change. The
Commission finds that it is appropriate
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 93854
(December 22, 2021), 86 FR 74122 (December 29,
2021) (File No. SR–DTC–2021–017).
4 15 U.S.C. 78s(b)(2).
24
1 15
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to designate a longer period within
which to take action on the Proposed
Rule Change so that it has sufficient
time to consider and take action on the
Proposed Rule Change.
Accordingly, pursuant to Section
19(b)(2) of the Act 5 and for the reasons
stated above, the Commission
designates March 29, 2022 as the date
by which the Commission shall either
approve, disapprove, or institute
proceedings to determine whether to
disapprove proposed rule change SR–
DTC–2021–017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–01965 Filed 1–31–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94065; File No. SR–Phlx–
2022–03]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Reduce Phlx’s
Options Regulatory Fee
January 26, 2022.
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 January
20, 2022, 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,
Section 6, Part D to reduce the Phlx
Options Regulatory Fee or ‘‘ORF’’.
While the changes proposed herein
are effective upon filing, the Exchange
has designated the amendments become
operative on February 1, 2022.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
5 Id.
6 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\01FEN1.SGM
01FEN1
]]>Agencies
[Federal Register Volume 87, Number 21 (Tuesday, February 1, 2022)]
[Notices]
[Pages 5545-5548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01967]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94069; File No. SR-GEMX-2022-03]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Reduce GEMX's
Options Regulatory Fee
January 26, 2022.
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 January 20, 2022, Nasdaq GEMX, LLC (``GEMX'' 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 Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend GEMX's Pricing Schedule at Options
7, Section 5 to reduce the GEMX Options Regulatory Fee or ``ORF''.
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on February 1,
2022.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/gemx/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
GEMX previously filed to waive its ORF from October 1, 2021 through
January 31, 2022.\3\ The Waiver Filing provided that GEMX would
continue monitoring the amount of revenue collected from the ORF to
determine if regulatory revenues would exceed regulatory costs when it
recommenced assessing ORF on February 1, 2022. If so, the Exchange
committed to adjust its ORF.\4\ At this time, after a review of its
regulatory revenues and regulatory costs, the Exchange proposes to
reduce the ORF from $0.0018 (the amount of the ORF prior to the waiver)
to $0.0014 per contract side as of February 1, 2022, 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.
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\3\ See Securities Exchange Act Release No. 92698 (August 18,
2021), 86 FR 47355 (August 24, 2021) (SR-GEMX-2021-08) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
GEMX's Options Regulatory Fee) (``Waiver Filing'').
\4\ Id. at 47357.
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The options industry continues to experience high options trading
volumes and volatility. At this time, GEMX believes that the options
volume it experienced in the second half of 2021 is likely to persist
into 2022. The anticipated options volume would impact GEMX's ORF
collection which, in turn, has caused GEMX to propose reducing the ORF
to ensure that revenue collected from the ORF, in combination with
other regulatory fees and fines, would not exceed the Exchange's total
regulatory costs.
Collection of ORF
Upon recommencement of the ORF on February 1, 2022,\5\ GEMX will
assess its ORF for each customer option transaction that is either: (1)
Executed by a Member on GEMX; or (2) cleared by an GEMX Member at The
Options Clearing Corporation (``OCC'') in the customer range,\6\ even
if the transaction was executed by a non-Member of GEMX, regardless of
the exchange on which the transaction occurs.\7\ If the OCC clearing
member is a GEMX Member, ORF is assessed and collected on all cleared
customer contracts (after adjustment for CMTA \8\); and (2) if the OCC
clearing member is not a GEMX Member, ORF is collected only on the
cleared customer contracts executed at GEMX, taking into account any
CMTA instructions which may result in collecting the ORF from a non-
Member.\9\
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\5\ Prior to the Waiver Filing, the Exchange similarly collected
ORF as described herein.
\6\ 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 members
mark orders with the correct account origin code.
\7\ The Exchange uses reports from OCC when assessing and
collecting the ORF.
\8\ 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.
\9\ By way of example, if Broker A, a GEMX Member, routes a
customer order to CBOE and the transaction executes on CBOE and
clears in Broker A's OCC Clearing account, ORF will be collected by
GEMX from Broker A's clearing account at OCC via direct debit. While
this transaction was executed on a market other than GEMX, it was
cleared by a GEMX Member in the member's OCC clearing account in the
customer range, therefore there is a regulatory nexus between GEMX
and the transaction. If Broker A was not a GEMX Member, then no ORF
should be assessed and collected because there is no nexus; the
transaction did not execute on GEMX nor was it cleared by a GEMX
Member.
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In the case where a Member both executes a transaction and clears
the transaction, the ORF will be assessed to and collected from that
Member. In the case where a Member executes a transaction and a
different Member clears the transaction, the ORF will be assessed to
and collected from the Member who clears the transaction and not the
Member who executes the transaction. In the case where a non-Member
executes a transaction at an away market and a Member clears the
transaction, the ORF will be assessed to and collected from the Member
who clears the transaction. In the case where a Member executes a
transaction on GEMX and a non-Member clears the transaction, the ORF
will be assessed to the Member that executed the transaction on GEMX
and collected from the non-Member who cleared the transaction. In the
case where a Member
[[Page 5546]]
executes a transaction at an away market and a non-Member clears the
transaction, the ORF will not be assessed to the Member who executed
the transaction or collected from the non-Member who cleared the
transaction because the Exchange does not have access to the data to
make absolutely certain that ORF should apply. Further, the data does
not allow the Exchange to identify the Member executing the trade at an
away market.
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.
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 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 were
approximately 38% of the total regulatory costs for 2021. Thus, direct
expenses were approximately 62% of total regulatory costs for 2021.\10\
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\10\ The Exchange will set a 2022 Regulatory Budget in the first
quarter of 2022.
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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 is
proposing to reduce the amount of ORF that will be collected by the
Exchange from $0.0018 per contract side to $0.0014 per contract side.
The Exchange issued an Options Trader Alert on December 31, 2021
indicating the proposed rate change for February 1, 2022.\11\
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\11\ See Options Trader Alert 2021-63.
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The proposed reduction is based on a sustained high level of
options volume in 2021. The below table displays average daily volume
for 2021.\12\
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\12\ The OCC data from December 2021 numbers reflect only 13
trading days as this information is through December 17, 2021.
Volume data in the table represents numbers of contracts; each
contract has two sides.
[GRAPHIC] [TIFF OMITTED] TN01FE22.001
To date, fourth quarter options average daily volume in 2021 has
been higher than options average daily volume in any of the prior three
quarters of 2021. With respect to customer options volume across the
industry, total customer options contract average daily volume, to
date, in 2021 is 36,565,398 as compared to total customer options
contract average daily volume in 2020 which was 27,002,511.\13\
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\13\ See data from OCC at: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Volume-by-Account-Type.
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There can be no assurance that the Exchange's costs for 2022 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 that may
be generated utilizing an ORF rate of $0.0018 per contract side may
result in revenue which exceeds the Exchange's estimated regulatory
costs for 2022 if options volume persists. In 2021, options volume
remained high, due in large part to the extreme volatility in the
marketplace as a result of the COVID-19 pandemic. The Exchange
therefore proposes to reduce its ORF to $0.0014 per contract side to
ensure that revenue does not exceed the Exchange's estimated regulatory
costs in 2022. Particularly, the Exchange believes that reducing the
ORF when combined with 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 rate of $0.0018 per
contract side.\14\
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\14\ 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.
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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. 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
[[Page 5547]]
notifying \15\ its Members via an Options Trader Alert.\16\
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\15\ The Exchange will provide Members with such notice at least
30 calendar days prior to the effective date of the change.
\16\ 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.
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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.\17\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\18\ which provides that Exchange rules may provide
for the equitable allocation of reasonable dues, fees, and other
charges among its members, and other persons using its facilities.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \19\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(4).
\19\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed fee change is reasonable because
customer transactions will be subject to a lower ORF fee than the rate
that would otherwise be in effect on February 1, 2022. Moreover, the
proposed reduction is necessary for the Exchange to avoid collecting
revenue, in combination with other regulatory fees and fines, that
would be in excess of its anticipated regulatory costs 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 collect
revenue which would exceed its regulatory costs. Indeed, the Exchange
notes that when taking into account the potential that recent options
volume persists, it estimates the ORF may generate revenues that would
cover more than the approximated Exchange's projected regulatory costs.
As such, the Exchange believes it's reasonable and appropriate to
reduce the ORF amount from $0.0018 to $0.0014 per contract side.
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 OCC.\20\ 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'') \21\ 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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\20\ If the OCC clearing member is a GEMX member, ORF is
assessed and collected on all cleared customer contracts (after
adjustment for CMTA); and (2) if the OCC clearing member is not a
GEMX member, ORF is collected only on the cleared customer contracts
executed at GEMX, taking into account any CMTA instructions which
may result in collecting the ORF from a non-member.
\21\ 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 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
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 has become effective pursuant to Section
19(b)(3)(A) of the Act \22\ and paragraph (f) of Rule 19b-4 \23\
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
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investors, or otherwise in furtherance of the purposes of the Act. If
the Commission takes such action, the Commission will institute
proceedings to determine whether the proposed rule change should be
approved or disapproved.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f).
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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-GEMX-2022-03 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-GEMX-2022-03. 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-GEMX-2022-03, and should be submitted on or
before February 22, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01967 Filed 1-31-22; 8:45 am]
BILLING CODE 8011-01-P
