Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Reduce NOM's Options Regulatory Fee, 5541-5544 [2022-01972]
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Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices
Accordingly, even if the Exchange’s
Amendment No. 1 had been timely
filed, there is no additional information
in such amendment that would enable
the Commission to approve the
proposed rule change as amended.
IV. Conclusion
For the reasons set forth above, the
Commission does not find, pursuant to
Section 19(b)(2) of the Exchange Act,
that the proposed rule change is
consistent with the requirements of the
Exchange Act and the rules and
regulations thereunder applicable to a
national securities exchange, and in
particular, with Section 6(b)(5) of the
Exchange Act.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,
that proposed rule change SR–
CboeBZX–2021–039 be, and hereby is,
disapproved.
By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022–02001 Filed 1–31–22; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94064; File No. SR–
NASDAQ–2022–007]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Reduce
NOM’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, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ 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.
tkelley on DSK125TN23PROD with NOTICE
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend The
Nasdaq Options Market LLC’s (‘‘NOM’’)
Pricing Schedule at Options 7, Section
5 to reduce the NOM Options
Regulatory Fee or ‘‘ORF’’.
2 17
U.S.C. 78s(b)(1).
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
BILLING CODE 8011–01–P
1 15
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/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
1. Purpose
NOM previously filed to waive its
ORF from October 1, 2021 through
January 31, 2022.3 The Waiver Filing
provided that NOM 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 $0.0020 (the amount of
the ORF prior to the waiver) to $0.0016
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,
NOM 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 NOM’s ORF collection which, in
3 See Securities Exchange Act Release No. 92600
(August 6, 2021), 86 FR 44455 (August 12, 2021)
(SR–NASDAQ–2021–057) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
to Amend NOM’s Options Regulatory Fee) (‘‘Waiver
Filing’’).
4 Id at 44456.
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5541
turn, has caused NOM 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 NOM will assess its
ORF for each customer option
transaction that is either: (1) Executed
by a Participant on NOM; or (2) cleared
by a NOM Participant at The Options
Clearing Corporation (‘‘OCC’’) in the
customer range,6 even if the transaction
was executed by a non-Participant of
NOM, regardless of the exchange on
which the transaction occurs.7 If the
OCC clearing member is a NOM
Participant, ORF will be assessed and
collected on all cleared customer
contracts (after adjustment for CMTA 8);
and (2) if the OCC clearing member is
not a NOM Participant, ORF will be
collected only on the cleared customer
contracts executed at NOM, taking into
account any CMTA instructions which
may result in collecting the ORF from a
non-member.9
In the case where a Participant both
executes a transaction and clears the
transaction, the ORF will be assessed to
and collected from that Participant. In
the case where a Participant executes a
transaction and a different member
clears the transaction, the ORF will be
assessed to and collected from the
Participant who clears the transaction
and not the Participant who executes
the transaction. In the case where a nonmember executes a transaction at an
away market and a Participant clears the
transaction, the ORF will be assessed to
and collected from the Participant who
clears the transaction. In the case where
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 Participants
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 NOM
Participant, 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 NOM from Broker A’s clearing account
at OCC via direct debit. While this transaction was
executed on a market other than NOM, it was
cleared by a NOM Participant in the member’s OCC
clearing account in the customer range, therefore
there is a regulatory nexus between NOM and the
transaction. If Broker A was not a NOM Participant,
then no ORF should be assessed and collected
because there is no nexus; the transaction did not
execute on NOM nor was it cleared by a NOM
Participant.
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Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices
a Participant executes a transaction on
NOM and a non-member clears the
transaction, the ORF will be assessed to
the Participant that executed the
transaction on NOM and collected from
the non-member who cleared the
transaction. In the case where a
Participant executes a transaction at an
away market and a non-member clears
the transaction, the ORF will not be
assessed to the Participant 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 Participant
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
Total Contrads
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
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 $0.0020
per contract side to $0.0016 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 Trading Days Quarter Contrads Quarter Cust Sides Quarter ADC Quarter Cust ADS
Jan2021
838,339,790
784,399,878
19
Feb2021
823,413,002
782,113,450
19
Mar2021
898,653,:188
837,247,059
23
Apr2021
711,388,828
667,208,963
21
20
May2021
718,368,993
659,913,862
Jun2021
866,099,522
809,242,842
22
Jul2021
790,038,364
729,239,647
21
Aug2021
801,578,079
741,111,748
22
sep2021
811,458,905
744,936,837
21
Oct2021
821,102,002
760,524,395
21
Nov2021
944,355,975
866,102,667
21
Dec2021
561,154,417
503,350,470
13
2,500,406,lBO
2,403,700,387
41,913,872
39,48§,!JOII
2,295,857,343
2,136,365,667
36,442,180
33,918,566
2,403,075,348.
2,215,288,232
37,548,0SZ
34,613,819
2,326,612,394
2,129,977,532
42,.302,944
38,126,864
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 $0.0020 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 $0.0016 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
$0.0020 per contract side.14
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 Participants
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
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
Participant 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,
Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices
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
notifying 15 its Participants via an
Options Trader Alert.16
tkelley on DSK125TN23PROD with NOTICE
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 had 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
15 The Exchange will provide Participants 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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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 $0.0020 to $0.0016 per contract
side.
The Exchange also believes the
proposed fee change is equitable and
not unfairly discriminatory in that it is
charged to all Participants 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 Participants 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., Participant
proprietary transactions) of its
regulatory program. Moreover, the
Exchange notes that it has broad
regulatory responsibilities with respect
to activities of its Participants,
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
20 If the OCC clearing member is a NOM
Participant, ORF will be assessed and collected on
all cleared customer contracts (after adjustment for
CMTA); and (2) if the OCC clearing member is not
a NOM Participant, ORF will be collected only on
the cleared customer contracts executed at NOM,
taking into account any CMTA instructions which
may result in collecting the ORF from a nonmember.
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5543
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 Participants.
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 is effective
upon filing pursuant to Section
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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Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices
19(b)(3)(A) 22 of the Act and
subparagraph (f)(2) of Rule 19b–4 23
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 24 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
tkelley on DSK125TN23PROD with NOTICE
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–
NASDAQ–2022–007 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–NASDAQ–2022–007. 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
22 15
U.S.C. 78s(b)(3)(A).
23 17 CFR 240.19b–4(f)(2).
24 15 U.S.C. 78s(b)(2)(B).
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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–NASDAQ–2022–007, and should be
submitted on or before February 22,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–01972 Filed 1–31–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94068; File No. SR–NSCC–
2021–016]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Designation of
Longer Period for Commission Action
on a Proposed Rule Change To
Enhance Capital Requirements and
Make Other Changes
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
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 6 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–
NSCC–2021–016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–01966 Filed 1–31–22; 8:45 am]
BILLING CODE 8011–01–P
January 26, 2022.
On December 13, 2021, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
proposed rule change SR–NSCC–2021–
016 (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 has received comments
regarding the changes proposed in the
Proposed Rule Change.4
Section 19(b)(2) of the Act 5 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
25 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. 93856
(December 22, 2021), 86 FR 74185 (December 29,
2021) (File No. SR–NSCC–2021–016).
4 Comments are available at https://www.sec.gov/
comments/sr-nscc-2021-016/srnscc2021016.htm.
5 15 U.S.C. 78s(b)(2).
1 15
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94073; File No. SR–CBOE–
2021–075]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Withdrawal
of a Proposed Rule Change To
Increase Position Limits for Options on
the SPDR Gold Trust and iShares
Silver Trust
January 26, 2022.
On December 7, 2021, Cboe Exchange,
Inc. (‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
increase position limits for options on
the SPDR Gold Trust and iShares Silver
6 Id.
7 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 5541-5544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01972]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94064; File No. SR-NASDAQ-2022-007]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Reduce NOM'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, The Nasdaq Stock Market LLC (``Nasdaq'' 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.
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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 The Nasdaq Options Market LLC's
(``NOM'') Pricing Schedule at Options 7, Section 5 to reduce the NOM
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/nasdaq/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
NOM previously filed to waive its ORF from October 1, 2021 through
January 31, 2022.\3\ The Waiver Filing provided that NOM 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 $0.0020 (the amount of the ORF prior to the waiver) to $0.0016 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. 92600 (August 6,
2021), 86 FR 44455 (August 12, 2021) (SR-NASDAQ-2021-057) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
NOM's Options Regulatory Fee) (``Waiver Filing'').
\4\ Id at 44456.
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The options industry continues to experience high options trading
volumes and volatility. At this time, NOM 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 NOM's ORF
collection which, in turn, has caused NOM 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\ NOM will
assess its ORF for each customer option transaction that is either: (1)
Executed by a Participant on NOM; or (2) cleared by a NOM Participant
at The Options Clearing Corporation (``OCC'') in the customer range,\6\
even if the transaction was executed by a non-Participant of NOM,
regardless of the exchange on which the transaction occurs.\7\ If the
OCC clearing member is a NOM Participant, ORF will be assessed and
collected on all cleared customer contracts (after adjustment for CMTA
\8\); and (2) if the OCC clearing member is not a NOM Participant, ORF
will be collected only on the cleared customer contracts executed at
NOM, 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
Participants 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 NOM Participant, 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
NOM from Broker A's clearing account at OCC via direct debit. While
this transaction was executed on a market other than NOM, it was
cleared by a NOM Participant in the member's OCC clearing account in
the customer range, therefore there is a regulatory nexus between
NOM and the transaction. If Broker A was not a NOM Participant, then
no ORF should be assessed and collected because there is no nexus;
the transaction did not execute on NOM nor was it cleared by a NOM
Participant.
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In the case where a Participant both executes a transaction and
clears the transaction, the ORF will be assessed to and collected from
that Participant. In the case where a Participant executes a
transaction and a different member clears the transaction, the ORF will
be assessed to and collected from the Participant who clears the
transaction and not the Participant who executes the transaction. In
the case where a non-member executes a transaction at an away market
and a Participant clears the transaction, the ORF will be assessed to
and collected from the Participant who clears the transaction. In the
case where
[[Page 5542]]
a Participant executes a transaction on NOM and a non-member clears the
transaction, the ORF will be assessed to the Participant that executed
the transaction on NOM and collected from the non-member who cleared
the transaction. In the case where a Participant executes a transaction
at an away market and a non-member clears the transaction, the ORF will
not be assessed to the Participant 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 Participant 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 Participant 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 $0.0020 per contract side to $0.0016 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] TN01FE22.002
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 $0.0020 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 $0.0016 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 $0.0020 per
contract side.\14\
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\14\ The Exchange notes that its regulatory responsibilities
with respect to Participants 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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[[Page 5543]]
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 notifying \15\ its Participants via an Options Trader
Alert.\16\
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\15\ The Exchange will provide Participants 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 had 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 $0.0020 to $0.0016 per contract side.
The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory in that it is charged to all Participants
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 Participants 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., Participant proprietary
transactions) of its regulatory program. Moreover, the Exchange notes
that it has broad regulatory responsibilities with respect to
activities of its Participants, 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 Participants.
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\20\ If the OCC clearing member is a NOM Participant, ORF will
be assessed and collected on all cleared customer contracts (after
adjustment for CMTA); and (2) if the OCC clearing member is not a
NOM Participant, ORF will be collected only on the cleared customer
contracts executed at NOM, 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 is effective upon filing pursuant to
Section
[[Page 5544]]
19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule 19b-4 \23\
thereunder, because it establishes a due, fee, or other charge imposed
by the Exchange.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \24\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\24\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File No. SR-NASDAQ-2022-007 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-NASDAQ-2022-007. 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-NASDAQ-2022-007, and should be submitted on
or before February 22, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01972 Filed 1-31-22; 8:45 am]
BILLING CODE 8011-01-P
