Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Reduce GEMX's Options Regulatory Fee, 54381-54384 [2023-17103]
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Federal Register / Vol. 88, No. 153 / Thursday, August 10, 2023 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–17107 Filed 8–9–23; 8:45 am]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
[Release No. 34–98056; File No. SR–GEMX–
2023–09]
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Reduce GEMX’s
Options Regulatory Fee
August 4, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 25,
2023, Nasdaq GEMX, LLC (‘‘GEMX’’ 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
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 August 1, 2023.
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.
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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
28 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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.
GEMX proposes to lower its ORF from
$0.0013 to $0.0012 per contract side on
August 1, 2023. Previously, GEMX
lowered or waived its ORF in 2019,
2021, 2022 and 2023.3 After a review of
its regulatory revenues and regulatory
costs, the Exchange proposes to reduce
the ORF to ensure that revenue
collected from the ORF, in combination
with other regulatory fees and fines,
does not exceed the Exchange’s total
regulatory costs.
Volumes in the options industry went
over 900,000,000 in 2023. GEMX has
taken measures this year as well as in
prior years to lower and waive its ORF
to ensure that revenue collected from
the ORF, in combination with other
regulatory fees and fines, does not
exceed the Exchange’s total regulatory
costs. Despite those prior measures,
GEMX will need to reduce its ORF again
to account for trading volumes in the
first half of 2023 that were higher than
the Exchange forecast for ORF
assessment purposes, which resulted in
the collection of more ORF revenues
than anticipated in the first half of 2023.
At this time, GEMX believes that the
options volume it experienced in the
first half of 2023 is likely to persist. The
anticipated options volume would
continue to 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. 85140
(February 14, 2019), 84 FR 5511 (February 21, 2019)
(SR–GEMX–2019–01) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Amend the Options Regulatory Fee); 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); 94069
(January 26, 2022), 87 FR 5545 (February 1, 2022)
(SR–GEMX–2022–03) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Reduce GEMX’s Options Regulatory Fee); and
96598 (January 3, 2023), 88 FR 1308 (January 9,
2023) (SR–GEMX–2022–14) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Reduce GEMX’s Options Regulatory Fee).
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54381
Collection of ORF
GEMX will continue to 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,4 even if the transaction was
executed by a non-Member of GEMX,
regardless of the exchange on which the
transaction occurs.5 If the OCC clearing
member is a GEMX Member, ORF is
assessed and collected on all cleared
customer contracts (after adjustment for
CMTA 6); 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.7
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
executes a transaction at an away
market and a non-Member clears the
transaction, the ORF will not be
4 Participants must record the appropriate
account origin code on all orders at the time of
entry of the order. The Exchange represents that it
has surveillances in place to verify that members
mark orders with the correct account origin code.
5 The Exchange uses reports from OCC when
assessing and collecting the ORF.
6 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.
7 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. 88, No. 153 / Thursday, August 10, 2023 / Notices
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
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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 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 39% of
the total regulatory costs for 2023. Thus,
direct expenses were approximately
61% of total regulatory costs for 2023.8
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 $0.0013
per contract side to $0.0012 per contract
side. The Exchange issued an Options
Trader Alert on June 30, 2023 indicating
the proposed rate change for August 1,
2023.9
The proposed reduction is based on
current levels of options volume. The
below table displays monthly total
volume for 2023.10
Month
Total volume
Customer
sides
January 2023 ...........................................................................................................................................................
February 2023 .........................................................................................................................................................
March 2023 ..............................................................................................................................................................
April 2023 .................................................................................................................................................................
May 2023 .................................................................................................................................................................
June 2023 11 ............................................................................................................................................................
919,299,330
883,234,837
1,052,984,722
760,808,909
944,534,205
909,616,267
802,712,235
780,284,838
915,674991
673,183,772
826,490,407
801,688,960
Options volumes remained higher in
2023 with March 2023 exceeding
1,000,000,000 total contracts, higher
than any month in 2022. With respect
to customer options volume, it also
remains high in 2023. There can be no
assurance that the Exchange’s regulatory
costs for the remainder of 2023 will not
differ materially from the Exchange’s
budgeted amount, 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 $0.0013 per contract side may
result in revenue which exceeds the
Exchange’s estimated regulatory costs
for 2023 if options volumes remain at
levels higher than forecasted.
GEMX lowered its ORF in the
beginning of 2023 to account for options
volume in 2022. The Exchange proposes
to reduce its ORF to $0.0012 per
contract side to ensure that revenue
does not exceed the Exchange’s
estimated regulatory costs in 2023.
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
$0.0013 per contract side.12
The Exchange will continue to
monitor the amount of revenue
collected from the ORF to ensure that it,
in combination with its other regulatory
fees and fines, does not exceed
regulatory costs. If the Exchange
determines regulatory revenues may
exceed or are projected to exceed
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.15 Specifically,
the Exchange believes the proposed rule
change is consistent with Section 6(b)(4)
of the Act,16 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
8 These numbers are taken from the Exchange’s
2023 Regulatory Budget.
9 See Options Trader Alert 2023–15.
10 Volume data in the table represents numbers of
contracts; each contract has two sides.
11 June numbers reflect volumes through June 29,
2023.
12 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.
13 The Exchange provides Members with such
notice at least 30 calendar days prior to the
operative date of the change. See Options Trader
Alert 2023–15.
14 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 projected regulatory
expenses.
15 15 U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(4).
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regulatory costs, the Exchange will
adjust the ORF by submitting a fee
change filing to the Commission and
notifying 13 its Members via an Options
Trader Alert.14 The Exchange is also
deleting obsolete text in the Exhibit 5
regarding prior ORF rates.
2. Statutory Basis
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facilities. Additionally, the Exchange
believes the proposed rule change is
consistent with the Section 6(b)(5) 17
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 as of August 1, 2023
and the amount of the lower fee will
fund a reasonable portion of the
Exchange’s regulatory costs. 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.
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 $0.0013 to $0.0012 per contract
side on August 1, 2023.
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.18 The Exchange believes
the ORF ensures fairness by assessing
higher fees to those Members that
require more Exchange regulatory
services based on the amount of
17 15
U.S.C. 78f(b)(5).
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.
customer options business they
conduct. Regulating customer trading
activity is much more labor intensive
and requires greater expenditure of
human and technical resources than
regulating non-customer trading
activity, which tends to be more
automated and less labor-intensive. For
example, there are costs associated with
main office and branch office
examinations (e.g., staff expenses), as
well as investigations into customer
complaints and the terminations of
registered persons. As a result, the costs
associated with administering the
customer component of the Exchange’s
overall regulatory program are
materially higher than the costs
associated with administering the noncustomer component (e.g., Member
proprietary transactions) of its
regulatory program. Moreover, the
Exchange notes that it has broad
regulatory responsibilities with respect
to activities of its Members, irrespective
of where their transactions take place.
Many of the Exchange’s surveillance
programs for customer trading activity
may require the Exchange to look at
activity across all markets, such as
reviews related to position limit
violations and manipulation. Indeed,
the Exchange cannot effectively review
for such conduct without looking at and
evaluating activity regardless of where it
transpires. In addition to its own
surveillance programs, the Exchange
also works with other SROs and
exchanges on intermarket surveillance
related issues. Through its participation
in the Intermarket Surveillance Group
(‘‘ISG’’) 19 the Exchange shares
information and coordinates inquiries
and investigations with other exchanges
designed to address potential
intermarket manipulation and trading
abuses. Accordingly, there is a strong
nexus between the ORF and the
Exchange’s regulatory activities with
respect to customer trading activity of
its Members.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. This
proposal does not create an unnecessary
or inappropriate intra-market burden on
18 If
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19 ISG is an industry organization formed in 1983
to coordinate intermarket surveillance among the
SROs by cooperatively sharing regulatory
information pursuant to a written agreement
between the parties. The goal of the ISG’s
information sharing is to coordinate regulatory
efforts to address potential intermarket trading
abuses and manipulations.
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54383
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
19(b)(3)(A) 20 of the Act and
subparagraph (f)(2) of Rule 19b–4 21
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) 22 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:
20 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
22 15 U.S.C. 78s(b)(2)(B).
21 17
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
GEMX–2023–09 on the subject line.
Paper Comments
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• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–GEMX–2023–09. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–GEMX–2023–09 and should be
submitted on or before August 31, 2023.
For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.23
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–17103 Filed 8–9–23; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98059; File No. SR–
CboeBZX–2023–053]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Enhance Its
Drill-Through Protection Processes for
Simple Orders and Make Other
Clarifying Changes
August 4, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 24,
2023, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to
enhance its drill-through protection
processes for simple orders and make
other clarifying changes. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
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.
BILLING CODE 8011–01–P
1 15
23 17
CFR 200.30–3(a)(12).
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this rule filing is to
amend Rule 21.17, Additional Price
Protection Mechanisms and Risk
Controls, to enhance the drill-through
protection process for simple orders and
make other clarifying changes.
Drill-through price protection is
currently described in Exchange Rule
21.17(d). Under Rule 21.17(d)(1), if a
buy (sell) order enters the BZX Options
Book 3 (‘‘Book’’) at the conclusion of the
opening auction process or would
execute or post to the Book at the time
of order entry, the System 4 executes the
order up to a buffer amount (the
Exchange determines the buffer amount
on a class and premium basis) above
(below) the offer (bid) limit of the
Opening Collar 5 or the National Best
Offer (‘‘NBO’’) (National Best Bid
(‘‘NBB’’)) that existed at the time of
order entry, respectively (the ‘‘drillthrough price’’).6
Current Rule 21.17(d)(2) (as amended,
proposed Rule 21.17(d)(3)) 7 establishes
an iterative drill-through process,
whereby the Exchange permits orders to
rest in the Book for multiple time
periods and at more aggressive
displayed prices during each time
period.8 Specifically, the System enters
the order in the Book with a displayed
price equal to the drill-through price
(unless the terms of the order instruct
otherwise).9 The order (or unexecuted
portion) will rest in the Book at the
drill-through price for the duration of
consecutive time periods (the Exchange
determines on a class-by-class basis the
3 ‘‘BZX Book’’ means the System’s electronic file
of orders. See Rule 1.5 (e).
4 ‘‘System’’ means the electronic communications
and trading facility designated by the Board through
which securities orders of Users are consolidated
for ranking, execution and, when applicable,
routing away. See Rule 1.5 (aa).
5 See Rule 21.7(a) for the definition of Opening
Collar.
6 See Rule 21.17(d)(1).
7 As part of the rule changes described herein, the
Exchange proposes to renumber current
subparagraph (d)(2) to be proposed subparagraph
(d)(3), and to renumber current subparagraph (d)(3)
to be proposed subparagraph (d)(4).
8 The Exchange will announce to Members the
buffer amount and the length of the time periods.
The Exchange notes that each time period will be
the same length (as designated by the Exchange),
and the buffer amount applied for each time period
will be the same.
9 Currently, the drill-through protections
described under current Rule 21.17(d)(2) apply only
to a limit order with a Time-in-Force of Day, Goodtil-Cancel (‘‘GTC’’), or Good-til-Day (‘‘GTD’’). This
rule proposal also seeks to clarify which orders are
subject to the drill-through protections, as described
herein.
E:\FR\FM\10AUN1.SGM
10AUN1
]]>Agencies
[Federal Register Volume 88, Number 153 (Thursday, August 10, 2023)]
[Notices]
[Pages 54381-54384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17103]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98056; File No. SR-GEMX-2023-09]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Reduce GEMX's
Options Regulatory Fee
August 4, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 25, 2023, Nasdaq GEMX, LLC (``GEMX'' 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 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 August 1,
2023.
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 proposes to lower its ORF from $0.0013 to $0.0012 per contract
side on August 1, 2023. Previously, GEMX lowered or waived its ORF in
2019, 2021, 2022 and 2023.\3\ After a review of its regulatory revenues
and regulatory costs, the Exchange proposes to reduce the ORF to ensure
that revenue collected from the ORF, in combination with other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs.
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\3\ See Securities Exchange Act Release No. 85140 (February 14,
2019), 84 FR 5511 (February 21, 2019) (SR-GEMX-2019-01) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Options Regulatory Fee); 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); 94069 (January 26, 2022), 87 FR 5545
(February 1, 2022) (SR-GEMX-2022-03) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Reduce GEMX's Options
Regulatory Fee); and 96598 (January 3, 2023), 88 FR 1308 (January 9,
2023) (SR-GEMX-2022-14) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Reduce GEMX's Options
Regulatory Fee).
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Volumes in the options industry went over 900,000,000 in 2023. GEMX
has taken measures this year as well as in prior years to lower and
waive its ORF to ensure that revenue collected from the ORF, in
combination with other regulatory fees and fines, does not exceed the
Exchange's total regulatory costs. Despite those prior measures, GEMX
will need to reduce its ORF again to account for trading volumes in the
first half of 2023 that were higher than the Exchange forecast for ORF
assessment purposes, which resulted in the collection of more ORF
revenues than anticipated in the first half of 2023. At this time, GEMX
believes that the options volume it experienced in the first half of
2023 is likely to persist. The anticipated options volume would
continue to 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
GEMX will continue to 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,\4\ even if the transaction was executed by a
non-Member of GEMX, regardless of the exchange on which the transaction
occurs.\5\ If the OCC clearing member is a GEMX Member, ORF is assessed
and collected on all cleared customer contracts (after adjustment for
CMTA \6\); 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.\7\
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\4\ Participants must record the appropriate account origin code
on all orders at the time of entry of the order. The Exchange
represents that it has surveillances in place to verify that members
mark orders with the correct account origin code.
\5\ The Exchange uses reports from OCC when assessing and
collecting the ORF.
\6\ 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.
\7\ 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 executes a transaction at an away market and a non-
Member clears the transaction, the ORF will not be
[[Page 54382]]
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 39% of the total regulatory costs for 2023. Thus, direct
expenses were approximately 61% of total regulatory costs for 2023.\8\
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\8\ These numbers are taken from the Exchange's 2023 Regulatory
Budget.
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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 $0.0013 per contract side to $0.0012 per contract side.
The Exchange issued an Options Trader Alert on June 30, 2023 indicating
the proposed rate change for August 1, 2023.\9\
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\9\ See Options Trader Alert 2023-15.
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The proposed reduction is based on current levels of options
volume. The below table displays monthly total volume for 2023.\10\
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\10\ Volume data in the table represents numbers of contracts;
each contract has two sides.
------------------------------------------------------------------------
Month Total volume Customer sides
------------------------------------------------------------------------
January 2023............................ 919,299,330 802,712,235
February 2023........................... 883,234,837 780,284,838
March 2023.............................. 1,052,984,722 915,674991
April 2023.............................. 760,808,909 673,183,772
May 2023................................ 944,534,205 826,490,407
June 2023 \11\.......................... 909,616,267 801,688,960
------------------------------------------------------------------------
Options volumes remained higher in 2023 with March 2023 exceeding
1,000,000,000 total contracts, higher than any month in 2022. With
respect to customer options volume, it also remains high in 2023. There
can be no assurance that the Exchange's regulatory costs for the
remainder of 2023 will not differ materially from the Exchange's
budgeted amount, 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
$0.0013 per contract side may result in revenue which exceeds the
Exchange's estimated regulatory costs for 2023 if options volumes
remain at levels higher than forecasted.
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\11\ June numbers reflect volumes through June 29, 2023.
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GEMX lowered its ORF in the beginning of 2023 to account for
options volume in 2022. The Exchange proposes to reduce its ORF to
$0.0012 per contract side to ensure that revenue does not exceed the
Exchange's estimated regulatory costs in 2023. 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 $0.0013 per contract side.\12\
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\12\ 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 may exceed or are projected to
exceed regulatory costs, the Exchange will adjust the ORF by submitting
a fee change filing to the Commission and notifying \13\ its Members
via an Options Trader Alert.\14\ The Exchange is also deleting obsolete
text in the Exhibit 5 regarding prior ORF rates.
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\13\ The Exchange provides Members with such notice at least 30
calendar days prior to the operative date of the change. See Options
Trader Alert 2023-15.
\14\ 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 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.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\16\ 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
[[Page 54383]]
facilities. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \17\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
\17\ 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 as of August
1, 2023 and the amount of the lower fee will fund a reasonable portion
of the Exchange's regulatory costs. 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.
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 $0.0013 to $0.0012 per contract side on
August 1, 2023.
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.\18\ The
Exchange believes the ORF ensures fairness by assessing higher fees to
those Members that require more Exchange regulatory services based on
the amount of customer options business they conduct. Regulating
customer trading activity is much more labor intensive and requires
greater expenditure of human and technical resources than regulating
non-customer trading activity, which tends to be more automated and
less labor-intensive. For example, there are costs associated with main
office and branch office examinations (e.g., staff expenses), as well
as investigations into customer complaints and the terminations of
registered persons. As a result, the costs associated with
administering the customer component of the Exchange's overall
regulatory program are materially higher than the costs associated with
administering the non-customer component (e.g., Member proprietary
transactions) of its regulatory program. Moreover, the Exchange notes
that it has broad regulatory responsibilities with respect to
activities of its Members, irrespective of where their transactions
take place. Many of the Exchange's surveillance programs for customer
trading activity may require the Exchange to look at activity across
all markets, such as reviews related to position limit violations and
manipulation. Indeed, the Exchange cannot effectively review for such
conduct without looking at and evaluating activity regardless of where
it transpires. In addition to its own surveillance programs, the
Exchange also works with other SROs and exchanges on intermarket
surveillance related issues. Through its participation in the
Intermarket Surveillance Group (``ISG'') \19\ the Exchange shares
information and coordinates inquiries and investigations with other
exchanges designed to address potential intermarket manipulation and
trading abuses. Accordingly, there is a strong nexus between the ORF
and the Exchange's regulatory activities with respect to customer
trading activity of its Members.
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\18\ 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.
\19\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by cooperatively
sharing regulatory information pursuant to a written agreement
between the parties. The goal of the ISG's information sharing is to
coordinate regulatory efforts to address potential intermarket
trading abuses and manipulations.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not 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 19(b)(3)(A) \20\ of the Act and subparagraph (f)(2) of Rule
19b-4 \21\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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) \22\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\22\ 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:
[[Page 54384]]
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 number SR-GEMX-2023-09 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 number SR-GEMX-2023-09. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-GEMX-2023-09 and should be
submitted on or before August 31, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17103 Filed 8-9-23; 8:45 am]
BILLING CODE 8011-01-P
