Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Reduce ISE's Options Regulatory Fee, 54362-54365 [2023-17104]
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54362
Federal Register / Vol. 88, No. 153 / Thursday, August 10, 2023 / Notices
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
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 this
proposed rule change is August 6, 2023.
The Commission is extending this 45day time period.
The Commission finds it appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider the proposed rule change.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,6
designates September 20, 2023 as the
date by which the Commission shall
either approve or disapprove, or
institute proceedings to determine
whether to disapprove, the proposed
rule change (File No. SR–MIAX–2023–
22).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–17105 Filed 8–9–23; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–98057; File No. SR–ISE–
2023–14]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Reduce ISE’s Options
Regulatory Fee
ddrumheller on DSK120RN23PROD with NOTICES1
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 ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II,
U.S.C. 78s(b)(2).
6 Id.
7 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
ISE’s Pricing Schedule at Options 7,
Section 9 to reduce the ISE 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/ise/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
SECURITIES AND EXCHANGE
COMMISSION
5 15
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
1. Purpose
ISE proposes to lower its ORF from
$0.0014 to $0.0013 per contract side on
August 1, 2023. Previously, ISE lowered
or waived its ORF in 2017, 2021 and
2022.3 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
3 See Securities Exchange Act Release Nos. 81345
(August 8, 2017), 82 FR 37939 (August 14, 2017)
(SR–ISE–2017–71) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend
ISE’s Schedule of Fees With Respect to the Options
Regulatory Fee); 92577 (August 5, 2021), 86 FR
44092 (August 11, 2021) (SR–ISE–2021–16) (Notice
of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend ISE’s Options Regulatory
Fee); and 94070 (January 26, 2022), 87 FR 5524
(February 1, 2022) (SR–ISE–2022–02)(Notice of
Filing and Immediate Effectiveness of Proposed
Rule Change To Reduce ISE’s Options Regulatory
Fee).
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exceed the Exchange’s total regulatory
costs.
Volumes in the options industry went
over 900,000,000 in 2023. ISE 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, ISE
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, ISE 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 ISE’s ORF collection
which, in turn, has caused ISE 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
ISE will continue to assess its ORF for
each customer option transaction that is
either: (1) executed by a Member on ISE;
or (2) cleared by an ISE Member at The
Options Clearing Corporation (‘‘OCC’’)
in the customer range,4 even if the
transaction was executed by a nonMember of ISE, regardless of the
exchange on which the transaction
occurs.5 If the OCC clearing member is
an ISE 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 an ISE Member, ORF is collected
only on the cleared customer contracts
executed at ISE, taking into account any
CMTA instructions which may result in
collecting the ORF from a non-Member.7
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, an ISE 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
ISE from Broker A’s clearing account at OCC via
direct debit. While this transaction was executed on
a market other than ISE, it was cleared by an ISE
Member in the member’s OCC clearing account in
the customer range, therefore there is a regulatory
nexus between ISE and the transaction. If Broker A
was not an ISE Member, then no ORF should be
assessed and collected because there is no nexus;
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Federal Register / Vol. 88, No. 153 / Thursday, August 10, 2023 / Notices
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 ISE
and a non-Member clears the
transaction, the ORF will be assessed to
the Member that executed the
transaction on ISE 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
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 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 $0.0014
per contract side to $0.0013 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
January 2023 ...................................................................................................................................................
February 2023 .................................................................................................................................................
March 2023 ......................................................................................................................................................
April 2023 .........................................................................................................................................................
May 2023 .........................................................................................................................................................
June 2023 11 ....................................................................................................................................................
ddrumheller on DSK120RN23PROD with NOTICES1
54363
919,299,330
883,234,837
1,052,984,722
760,808,909
944,534,205
909,616,267
Customer sides
802,712,235
780,284,838
915,674991
67,3183,772
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 $0.0014 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. ISE
lowered its ORF in 2022 to account for
the options volume in 2022. The
Exchange proposes to reduce its ORF to
$0.0013 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
$0.0014 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
regulatory costs, the Exchange will
adjust the ORF by submitting a fee
change filing to the Commission and
the transaction did not execute on ISE nor was it
cleared by an ISE Member.
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.
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Federal Register / Vol. 88, No. 153 / Thursday, August 10, 2023 / Notices
notifying 13 its Members via an Options
Trader Alert.14
ddrumheller on DSK120RN23PROD with NOTICES1
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
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
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).
17 15 U.S.C. 78f(b)(5).
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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 $0.0014 to $0.0013 per contract
side.
The Exchange also believes the
proposed fee change is equitable and
not unfairly discriminatory in that it is
charged to all Members on all their
transactions that clear in the customer
range at OCC.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 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
18 If the OCC clearing member is an ISE member,
ORF is assessed and collected on all cleared
customer contracts (after adjustment for CMTA);
and (2) if the OCC clearing member is not an ISE
member, ORF is collected only on the cleared
customer contracts executed at ISE, taking into
account any CMTA instructions which may result
in collecting the ORF from a non-member.
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(‘‘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
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
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.
20 15 U.S.C. 78s(b)(3)(A).
21 17 CFR 240.19b–4(f)(2).
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Federal Register / Vol. 88, No. 153 / Thursday, August 10, 2023 / Notices
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:
ddrumheller on DSK120RN23PROD with NOTICES1
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–
ISE–2023–14 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–ISE–2023–14. 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
22 15
U.S.C. 78s(b)(2)(B).
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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–ISE–2023–14 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. 2023–17104 Filed 8–9–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98064; File No. SR–NSCC–
2022–802)]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of No Objection to
Advance Notice Related to Certain
Enhancements to the Gap Risk
Measure and the VaR Charge
August 4, 2023.
I. Introduction
On December 2, 2022, the National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
advance notice SR–NSCC–2022–802
(‘‘Advance Notice’’) pursuant to section
806(e)(1) of Title VIII of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act, entitled Payment,
Clearing and Settlement Supervision
Act of 2010 (‘‘Clearing Supervision
Act’’) 1 and Rule 19b–4(n)(1)(i) 2 under
the Securities Exchange Act of 1934
(‘‘Exchange Act’’) 3 regarding certain
enhancements to its gap risk charge and
the volatility component of a member’s
required margin.4 The Advance Notice
was published for comment in the
Federal Register on December 21,
2022.5 On January 10, 2023, the
Commission issued an extension of the
review period for the Advance Notice.6
On March 27, 2023, the Commission
requested additional information from
NSCC pursuant to section 806(e)(1)(D)
of the Clearing Supervision Act, which
23 17
CFR 200.30–3(a)(12).
U.S.C. 5465(e)(1).
2 17 CFR 240.19b–4(n)(1)(i).
3 15 U.S.C. 78a et seq.
4 See Notice of Filing, infra note 5, at 87 FR
78175.
5 Exchange Act Release No. 96513 (Dec. 15, 2022),
87 FR 78175 (Dec. 21, 2022) (File No. SR–NSCC–
2022–802) (‘‘Notice of Filing’’).
6 Exchange Act Release No. 96624 (Jan. 10, 2023),
88 FR 2707 (Jan. 17, 2023).
1 12
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54365
tolled the Commission’s period of
review of the Advance Notice until 120
days 7 from the date the requested
information was received by the
Commission.8 The Commission received
NSCC’s response to the Commission’s
request for additional information on
April 28, 2023. The Commission has
received comments regarding the
changes proposed in the Advance
Notice.9 The Commission is hereby
providing notice of no objection to the
Advance Notice.
II. Background 10
NSCC provides clearing, settlement,
risk management, central counterparty
services, and a guarantee of completion
for virtually all broker-to-broker trades
involving equity securities, corporate
and municipal debt securities, and unit
investment trust transactions in the U.S.
markets. A key tool that NSCC uses to
manage its credit exposure to its
members is collecting an appropriate
amount of margin (i.e., collateral) from
each member.11
A. Overview Regarding NSCC’s Margin
Methodology
A member’s margin is designed to
mitigate potential losses to NSCC
associated with the liquidation of the
member’s portfolio in the event that
7 The Commission may extend the review period
for an additional 60 days (to 120 days total) for
proposed changes that raise novel or complex
issues. See 12 U.S.C. 5465(e)(1)(H).
8 See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii);
Memorandum from Office of Clearance and
Settlement, Division of Trading and Markets, titled
‘‘Commission’s Request for Additional Information’’
(dated Mar. 27, 2023), available at https://
www.sec.gov/comments/sr-nscc-2022-802/
srnscc2022802-20161718-330589.pdf.
9 The Commission received one comment that
was not relevant to the proposal in the Advance
Notice. See https://www.sec.gov/comments/sr-nscc2022-802/srnscc2022802-320764.htm (commenting
on certain aspects of NSCC’s operations that are not
addressed or changed in this proposal). In addition,
the Commission received one comment on the
related proposed rule change filed as NSCC–2022–
015. See Exchange Act Release No. 96511 (Dec. 15,
2022), 87 FR 78157 (Dec. 21, 2022) (‘‘Proposed Rule
Change’’), with comments at https://www.sec.gov/
comments/sr-nscc-2022-015/srnscc2022015.htm.
Because the proposals contained in the Advance
Notice and the Proposed Rule Change are the same,
all public comments received on the proposals were
considered regardless of whether the comments
were submitted with respect to the Advance Notice
or the Proposed Rule Change.
10 Capitalized terms not defined herein are
defined in NSCC’s Rules & Procedures (‘‘Rules’’),
available at https://www.dtcc.com/∼/media/Files/
Downloads/legal/rules/nscc_rules.pdf.
11 Pursuant to its Rules, NSCC uses the term
‘‘Required Fund Deposit’’ to denote margin or
collateral collected from its members. See Rule 4
(Clearing Fund) and Procedure XV (Clearing Fund
Formula and Other Matters) of the Rules, supra note
10.
E:\FR\FM\10AUN1.SGM
10AUN1
]]>Agencies
[Federal Register Volume 88, Number 153 (Thursday, August 10, 2023)]
[Notices]
[Pages 54362-54365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17104]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98057; File No. SR-ISE-2023-14]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Reduce ISE'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 ISE, LLC (``ISE'' 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 ISE's Pricing Schedule at Options 7,
Section 9 to reduce the ISE 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/ise/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
ISE proposes to lower its ORF from $0.0014 to $0.0013 per contract
side on August 1, 2023. Previously, ISE lowered or waived its ORF in
2017, 2021 and 2022.\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 Nos. 81345 (August 8,
2017), 82 FR 37939 (August 14, 2017) (SR-ISE-2017-71) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
ISE's Schedule of Fees With Respect to the Options Regulatory Fee);
92577 (August 5, 2021), 86 FR 44092 (August 11, 2021) (SR-ISE-2021-
16) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend ISE's Options Regulatory Fee); and 94070 (January
26, 2022), 87 FR 5524 (February 1, 2022) (SR-ISE-2022-02)(Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Reduce
ISE's Options Regulatory Fee).
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Volumes in the options industry went over 900,000,000 in 2023. ISE
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, ISE
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, ISE
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 ISE's ORF collection which, in turn, has caused ISE
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
ISE will continue to assess its ORF for each customer option
transaction that is either: (1) executed by a Member on ISE; or (2)
cleared by an ISE Member at The Options Clearing Corporation (``OCC'')
in the customer range,\4\ even if the transaction was executed by a
non-Member of ISE, regardless of the exchange on which the transaction
occurs.\5\ If the OCC clearing member is an ISE 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 an ISE Member, ORF
is collected only on the cleared customer contracts executed at ISE,
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, an ISE 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
ISE from Broker A's clearing account at OCC via direct debit. While
this transaction was executed on a market other than ISE, it was
cleared by an ISE Member in the member's OCC clearing account in the
customer range, therefore there is a regulatory nexus between ISE
and the transaction. If Broker A was not an ISE Member, then no ORF
should be assessed and collected because there is no nexus; the
transaction did not execute on ISE nor was it cleared by an ISE
Member.
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[[Page 54363]]
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 ISE and a non-Member clears the transaction, the ORF
will be assessed to the Member that executed the transaction on ISE 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 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 $0.0014 per contract side to $0.0013 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 67,3183,772
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
$0.0014 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. ISE lowered its ORF in 2022 to
account for the options volume in 2022. The Exchange proposes to reduce
its ORF to $0.0013 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 $0.0014 per contract side.\12\
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\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.
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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
[[Page 54364]]
notifying \13\ its Members via an Options Trader Alert.\14\
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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 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 $0.0014 to $0.0013 per contract side.
The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory in that it is charged to all Members on all
their transactions that clear in the customer range at OCC.\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 an ISE member, ORF is
assessed and collected on all cleared customer contracts (after
adjustment for CMTA); and (2) if the OCC clearing member is not an
ISE member, ORF is collected only on the cleared customer contracts
executed at ISE, 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
[[Page 54365]]
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:
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-ISE-2023-14 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-ISE-2023-14. 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-ISE-2023-14 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).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17104 Filed 8-9-23; 8:45 am]
BILLING CODE 8011-01-P
