Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule To Establish an Options Regulatory Fee, 68692-68697 [2023-21934]
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68692
Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
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–NYSEARCA–2023–67 and should be
submitted on or before October 25,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–22039 Filed 10–3–23; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–98585; File No. SR–MEMX–
2023–25]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend the Exchange’s Fee
Schedule To Establish an Options
Regulatory Fee
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September 28, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 27, 2023, MEMX LLC
(‘‘MEMX’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
CFR 200.30–3(a)(12), (59).
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 is filing with the
Commission a proposed rule change to
amend the Exchange’s fee schedule
applicable to Members 3 (the ‘‘Fee
Schedule’’) pursuant to Exchange Rules
15.1(a) and (c) to adopt an Options
Regulatory Fee (‘‘ORF’’) that would
automatically sunset on September 30,
2024. The Exchange proposes to
implement the changes to the Fee
Schedule pursuant to this proposal on
September 27, 2023. The text of the
proposed rule change is provided in
Exhibit 5.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
38 17
proposed rule change from interested
persons.
1. Purpose
In preparation for the launch of the
Exchange’s options market (‘‘MEMX
Options’’),4 the Exchange proposes to
establish an ORF in the amount of
$0.0015 per contract side. The amount
of the proposed fee is based on
historical industry volume, projected
volumes on the Exchange, and projected
Exchange regulatory costs. The
Exchange’s proposed ORF should
balance the Exchange’s regulatory
revenue against the anticipated
regulatory costs. As discussed more
fully below, the Exchange proposes that
the ORF will automatically sunset on
September 30, 2024.
The per-contract ORF will be
collected by the Options Clearing
3 See
Exchange Rule 1.5(p).
August 8, 2022, the Commission approved
SR–MEMX–2022–10, which proposed rules for the
trading of options on the Exchange. See Securities
Exchange Act Release No. 95445 (August 8, 2022),
87 FR 49894 (August 12, 2022) (SR–MEMX–2022–
010). The Exchange plans to launch MEMX Options
in September of 2023.
4 On
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Corporation (‘‘OCC’’) on behalf of the
Exchange for each options transaction,
cleared or ultimately cleared by an
Exchange member in the ‘‘customer’’
range, regardless of the exchange on
which the transaction occurs. The ORF
is collected from either: (1) a Member
that was the ultimate clearing firm 5 for
the transaction; or (2) a non-Member
that was the ultimate clearing firm
where a Member was the executing
clearing firm 6 for the transaction.
To illustrate how the ORF will be
assessed and collected, the Exchange
provides the following set of examples.
1. For all transactions executed on the
Exchange, if the ultimate clearing firm
is a Member of the Exchange, the ORF
is assessed to and collected from that
Member. If the ultimate clearing firm is
not a Member of the Exchange, the ORF
is collected from that non-Member
clearing firm but assessed to the
executing clearing firm.
2. If the transaction is executed on an
away exchange, the ORF is only
assessed and collected if either the
executing clearing firm or ultimate
clearing firm are Members of the
Exchange. If the ultimate clearing firm
is a Member of the Exchange, the ORF
is assessed to and collected from that
ultimate clearing firm. If the ultimate
clearing firm is not a Member of the
Exchange, the ORF is assessed to the
executing clearing firm (again, only if
that executing clearing firm is a Member
of the Exchange), and collected from the
ultimate clearing firm. Thus, to reiterate,
if neither the executing clearing firm nor
the ultimate clearing firm are members
of the Exchange, no ORF is assessed or
collected.
Finally, the Exchange will not assess
the ORF on outbound linkage trades.
‘‘Linkage trades’’ are tagged in the
Exchange’s system, so the Exchange can
distinguish them from other trades. A
customer order routed to another
exchange results in the appearance of
two customer trades, one from the
originating exchange and one from the
recipient exchange. Charging ORF on
both trades could result in double5 The Exchange takes into account any CMTA
transfers when determining the ultimate clearing
firm for a transaction. CMTA or Clearing Member
Trade Assignment is a form of ‘‘give up’’ whereby
the position will be assigned to a specific clearing
firm at the OCC.
6 Throughout this filing, ‘‘executing clearing
firm’’ means the clearing firm through which the
entering broker indicated that the transaction would
be cleared at the time it entered the original order
which executed, and that clearing firm could be a
designated ‘‘give up’’, if applicable. The executing
clearing firm may be the ultimate clearing firm if
no CMTA transfer occurs. If a CMTA transfer
occurs, however, the ultimate clearing firm would
be the clearing firm that the position was
transferred to for clearing via CMTA.
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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
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billing of ORF for a single customer
order, thus the Exchange will not assess
ORF on outbound linkage trades in a
linkage scenario.7
As a practical matter, when a
transaction that is subject to the ORF is
not executed on the Exchange, the
Exchange lacks the information
necessary to identify the order entering
member for that transaction. There are
countless order entering market
participants, and each day such
participants can drop their connection
to one market center and establish
themselves as participants on another.
For these reasons, it is not possible for
the Exchange to identify, and thus
assess fees such as an ORF, on order
entering participants on away markets
on a given trading day.
Clearing members, however, are
distinguished from order entering
participants because they remain
identified to the Exchange on
information the Exchange receives from
the OCC regardless of the identity of the
order entering participant, their
location, and the market center on
which they execute transactions.
Therefore, the Exchange believes it is
more efficient for the operation of the
Exchange and for the marketplace as a
whole to collect the ORF from clearing
members. Additionally, this collection
method was originally instituted for the
benefit of clearing firms that desired to
have the ORF be collected from the
clearing firm that ultimately clears the
transaction.
As discussed below, the Exchange
believes it is appropriate to charge the
ORF only to transactions that clear as
customer at the OCC. The Exchange
believes that its broad regulatory
responsibilities with respect to a
Member’s activities support applying
the ORF to transactions cleared but not
executed by a Member. The Exchange’s
regulatory responsibilities are the same
regardless of whether a Member enters
an order that executes or clears a
transaction executed on its behalf. The
Exchange will regularly review all such
activities, including performing
7 To clarify, as stated previously, the Exchange
will assess and collect the ORF for each customer
options transaction that is cleared by a Member of
the Exchange, regardless of where the transaction
occurs. As such, transactions may fall into this
category that originated from customer orders
entered on the Exchange that were routed to and
executed on an away market pursuant to the
Options Linkage Plan. However, the Exchange will
not assess the ORF in this instance on the original
entering broker on MEMX Options, which would
result in a potential double billing. Instead, the
Exchange will only assess and collect from the
ultimate clearing firm, and only if the ultimate
clearing firm or the executing clearing firm is a
MEMX Options Member (because the transaction
ultimately occurs on an away market).
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surveillance for position limit
violations, end of day and intra-day
manipulation, front-running, contrary
exercise advice violations and insider
trading. These activities span across
multiple exchanges.
The ORF is designed to recover a
material portion of the costs to the
Exchange of the supervision and
regulation of Members’ customer
options business, including performing
routine surveillances and investigations,
as well as policy, rulemaking,
interpretive and enforcement activities.
The Exchange believes that revenue
generated from the ORF, when
combined with all of the Exchange’s
other regulatory fees and fines, will
cover a material portion, but not all, of
the Exchange’s regulatory costs.
Regulatory costs include direct
regulatory expenses and certain indirect
expenses for work allocated 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
surveillance, investigations and
examinations. The indirect expenses
include support from personnel in such
areas as human resources, legal,
information technology, facilities and
accounting as well as shared costs
necessary to operate the Exchange and
to carry out its regulatory function, such
as hardware, data center costs and
connectivity. The Exchange
acknowledges that these indirect
expenses are also allocated towards
other business operations, such as
providing connectivity and market data
services, for which the Exchange has
also conducted a cost-based analysis. As
such, when analyzing the indirect
expenses associated with its regulatory
program, the Exchange did not doublecount any expenses, but instead,
allocated a portion of the cost not
already allocated to other fees imposed
by the Exchange. Indirect expenses are
anticipated to be approximately 24% of
the total regulatory costs for 2023 and
2024. Thus, direct expenses are
anticipated to be approximately 76% of
the total regulatory costs for 2023 and
2024. The Exchange notes that its
regulatory responsibilities with respect
to Member compliance with options
sales practice rules have been allocated
to the Financial Industry Regulatory
Authority (‘‘FINRA’’) under a 17d–2
Agreement. The ORF is not designed to
cover the cost of options sales practice
regulation. Finally, the Exchange notes
that it takes into account all regulatory
sources of funding, including fines
collected by the Exchange in connection
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68693
with disciplinary matters, when
determining the appropriate ORF rate.
The Exchange will monitor the
amount of revenue collected from the
ORF to ensure that it, in combination
with its other regulatory fees and fines,
does not exceed the Exchange’s total
regulatory costs. More specifically, the
Exchange will ensure that revenue
generated from ORF not exceed more
than 75% of total annual regulatory
costs. The Exchange will monitor
regulatory costs and revenues at a
minimum on a semi-annual basis. If the
Exchange determines regulatory
revenues exceed or are insufficient to
cover a material portion of its regulatory
costs, the Exchange will adjust the ORF
by submitting a fee change filing to the
Commission. Going forward, the
Exchange will notify Members of
adjustments to the ORF via regulatory
circular at least 30 calendar days prior
to the effective date of the change.
The Exchange believes it is reasonable
and appropriate for the Exchange to
charge the ORF for options transactions
regardless of the exchange on which the
transactions occur. The Exchange has a
statutory obligation to enforce
compliance by Members and their
associated persons under the Act and
the rules of the Exchange and to surveil
for other manipulative conduct by
market participants trading on the
Exchange. The Exchange will not be
able to effectively surveil for such
conduct without looking at and
evaluating activity across all options
markets. Many of the Exchange’s market
surveillance programs require the
Exchange to look at and evaluate
activity across all options markets, such
as surveillance for position limit
violations, end of day and intra-day
manipulation, front-running and
contrary exercise advice violations/
expiring exercise declarations. While
much of this activity relates to the
execution of orders, the ORF is assessed
on and collected from clearing firms.
The Exchange, because it lacks access to
information on the identity of the
entering firm for executions that occur
on away markets, believes it is
appropriate to assess the ORF on its
Members’ clearing activity, based on
information the Exchange receives from
the OCC, including for away market
activity. Among other reasons, doing so
better and more accurately captures
activity that occurs away from the
Exchange but which may relate to
activity occurring on the Exchange.
Without reviewing activity on a marketwide basis, the Exchange would not be
able to effectively identify potentially
problematic cross-market activity, with
a portion occurring on other options
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exchanges and a portion on the
Exchange. Again, the Exchange
reiterates that it will not collect the ORF
on executions that occur on away
markets that are cleared by nonMembers, except for the limited
scenario where a Member clears a
transaction and ultimately ‘‘gives-up’’
the trade to a non-Member via CMTA.8
The Exchange believes that assessing
the ORF on Member clearing firms
equitably distributes the collection of
the ORF in a fair and reasonable
manner.
In addition to its own surveillance
programs, the Exchange will work with
other SROs and exchanges on
intermarket surveillance related issues
in connection with its regulatory
program for options. Specifically, the
Exchange and other options exchanges
are required to populate a consolidated
options audit trail (‘‘COATS’’) 9 system
in order to surveil a Member’s activities
across markets. Further, through its
participation in the Intermarket
Surveillance Group (‘‘ISG’’),10 the
Exchange will share information and
coordinate inquiries and investigations
with other exchanges designed to
address potential intermarket
manipulation and trading abuses. The
Exchange’s participation in ISG helps it
to satisfy the requirement that it has
coordinated surveillance with markets
on which security futures are traded and
markets on which any security
underlying security futures are traded to
detect manipulation and insider
trading.11
The Exchange believes that charging
the ORF across markets will avoid
having Members direct their trades to
other markets in order to avoid the fee
and to thereby avoid paying for their fair
share for regulation. If the ORF did not
apply to activity across markets then a
Member would send their orders to the
least cost, least regulated exchange (to
the extent permissible under the
Options Linkage plan, which, among
other requirements, prohibits trading
through of better priced quotations).
Other exchanges do impose a similar fee
8 To reiterate, in this instance, the ORF would be
collected from the non-Member ultimate CMTA
clearing firm but assessed to the Member executing
clearing firm.
9 COATS effectively enhances intermarket
options surveillance by enabling the options
exchanges to reconstruct the market promptly to
effectively surveil certain rules.
10 ISG is an industry organization formed in 1983
to coordinate intermarket surveillance among the
SROs by co-operatively 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.
11 See Section 6(h)(3)(I) of the Act.
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on their member’s [sic] activity, and
their fees will extend to include the
activities of their own members on the
Exchange. In other words, upon launch
of the Exchange, other exchanges will
charge the ORF for executions occurring
on MEMX Options cleared by their
customers.12 In fact, all sixteen (16)
12 See Securities Exchange Act Release Nos.
58817 (October 20, 2008), 73 FR 63744 (October 27,
2008) (SR–CBOE–2008–05) (notice of filing and
immediate effectiveness of Cboe Exchange, Inc.
(‘‘CBOE’’) adopting an ORF applicable to
transactions across all options exchanges); 61133
(December 9, 2009), 74 FR 66715 (December 16,
2009) (SR–Phlx–2009–100) (notice of filing and
immediate effectiveness of Nasdaq PHLX LLC
(‘‘Phlx’’) adopting an ORF applicable to transactions
across all options exchanges); 61154 (December 11,
2009), 74 FR 67278 (December 18, 2009) (SR–ISE–
2009–105) (notice of filing and immediate
effectiveness of Nasdaq ISE, LLC (‘‘ISE’’) adopting
an ORF applicable to transactions across all options
exchanges); 61388 (January 20, 2010), 75 FR 4431
(January 27, 2010) (SR–BX–2010–001) (notice of
filing and immediate effectiveness of Nasdaq OMX
BX, Inc. (‘‘BX’’) adopting an ORF applicable to
transactions across all options exchanges); 70200
(August 14, 2013) 78 FR 51242 (August 20, 2013)
(SR–Topaz–2013–01)) (notice of filing and
immediate effectiveness of Nasdaq GEMX, LLC
(‘‘GEMX’’), formerly known as ISE Gemini and
Topaz Exchange, adopting an ORF applicable to
transactions across all options exchanges); 64400
(May 4, 2011), 76 FR 27118 (May 10, 2011) (SR–
NYSEAmex–2011–27) (notice of filing and
immediate effectiveness of NYSE Amex LLC
(‘‘NYSE AMEX’’) adopting an ORF applicable to
transactions across all options exchanges); 64399
(May 4, 2011), 76 FR 27114 (May 10, 2011) (SR–
NYSEArca–2011–20) (notice of filing and
immediate effectiveness of NYSE Arca, Inc. (‘‘NYSE
Arca’’) adopting an ORF applicable to transactions
across all options exchanges); 65913 (December 8,
2011), 76 FR 77883 (December 14, 2011) (SR–
NASDAQ–2011–163) (notice of filing and
immediate effectiveness of Nasdaq Options Market
(‘‘NOM’’) adopting an ORF applicable to
transactions across all options exchanges); 66979
(May 14, 2012), 77 FR 29740 (May 18, 2012) (SR–
BOX–2012–002) (notice of filing and immediate
effectiveness of BOX Options Exchange LLC
(‘‘BOX’’) adopting an ORF applicable to
transactions across all options exchanges); 67596
(August 6, 2012), 77 FR 47902 (August 10, 2012)
(SR–C2–2012–023) (notice of filing and immediate
effectiveness of C2 Options Exchange, Inc. (‘‘C2’’)
adopting an ORF applicable to transactions across
all options exchanges); 68711 (January 23, 2013) 78
FR 6155 (January 29, 2013) (SR–MIAX–2013–01)
(notice of filing and immediate effectiveness of
Miami International Securities Exchange LLC
(‘‘MIAX’’) adopting an ORF applicable to
transactions across all options exchanges); 74214
(February 5, 2015), 80 FR 7665 (February 11, 2015)
(SR–BATS–2015–08) (notice of filing and
immediate effectiveness of Cboe BZX Exchange,
Inc. (‘‘BZX’’) formerly known as BATS, adopting an
ORF applicable to transactions across all options
exchanges); 80025 (February 13, 2017) 82 FR 11081
(February 17, 2017) (SR–BatsEDGX–2017–04)
(notice of filing and immediate effectiveness of
Cboe EDGX Exchange, Inc. (‘‘EDGX’’) formerly
known as Bats EDGX Exchange, Inc., adopting an
ORF applicable to transactions across all options
exchanges); 80875 (June 7, 2017) 82 FR 27096 (June
13, 2017) (SR–PEARL–2017–26) (notice of filing
and immediate effectiveness of MIAX Pearl, LLC
(‘‘MIAX Pearl’’) adopting an ORF applicable to
transactions across all options exchanges); 85127
(February 13, 2019) 84 FR 5173 (February 20, 2019)
(SR–MRX–2019–03) (notice of filing and immediate
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registered options exchanges currently
impose ORF on their members, and,
similar to the Exchange, the majority of
the options exchanges launched over
the last decade have implemented an
ORF on the day of launch or shortly
thereafter in order to properly fund their
regulatory programs.13
The Exchange notes that there is
established precedent for an SRO
charging a fee across markets, namely,
FINRA’s Trading Activity Fee 14 and the
ORF assessed by other options
exchanges including, but not limited to,
NYSE Amex, NYSE Arca, Cboe, BZX,
EDGX, Phlx, Nasdaq ISE, Nasdaq
GEMX, MIAX and BOX.15 While the
Exchange does not have all the same
regulatory responsibilities as FINRA, the
Exchange believes that, like other
exchanges that have adopted an ORF, its
broad regulatory responsibilities with
respect to a Member’s activities,
irrespective of where their transactions
take place, supports a regulatory fee
applicable to transactions on other
markets. Unlike FINRA’s Trading
Activity Fee, the ORF would apply only
to a Member’s customer options
transactions.
Additionally, the Exchange proposes
to specify in the Fee Schedule that the
Exchange may only increase or decrease
the ORF semi-annually. In addition to
submitting a proposed rule change to
the Commission as required by the Act
to increase or decrease the ORF, the
Exchange will notify participants via a
Regulatory Circular of any anticipated
change in the amount of the fee at least
30 calendar days prior to the effective
date of the change. The Exchange
believes that by providing guidance on
the timing of any changes to the ORF,
the Exchange would make it easier for
participants to ensure their systems are
configured to properly account for the
ORF.
Lastly, the Exchange recognizes that
in 2019, the Commission issued
suspensions of and orders instituting
proceedings to determine whether to
approve or disapprove a proposed rule
change to modify the Options
effectiveness of Nasdaq MRX, LLC (‘‘MRX’’)
adopting an ORF applicable to transactions across
all options exchanges); 85251 (March 6, 2019) 84 FR
8931 (March 12, 2019) (SR–EMERALD–2019–01)
(notice of filing and immediate effectiveness of
MIAX Emerald LLC (‘‘MIAX Emerald’’) adopting an
ORF applicable to transactions across all options
exchanges).
13 MIAX Options—effective 1/2/13, launch 12/7/
12; ISE Topaz—effective 8/5/13, launch same;
MIAX Pearl—effective 2/6/17, launch same; MIAX
Emerald—effective 3/1/19, launch same.
14 See Securities Exchange Act Release No. 47946
(May 30, 2003), 68 FR 34021 (June 6, 2003) (SR–
NASD–2002–148).
15 See supra note 13.
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Regulatory Fee of NYSE American,
NYSE Arca, MIAX, MIAX Pearl, MIAX
Emerald, Cboe, Cboe EDGX Options,
and C2.16 Each of those exchanges had
filed to increase their ORF, and the
Commission indicated that each of those
filings lacked detail and specificity,
signaling that more information was
needed to speak to whether the
proposed increased ORFs were
reasonable, equitably allocated and not
unfairly discriminatory, particularly
given that the ORF is assessed on
transactions that clear in the ‘‘customer’’
range and regardless of the exchange on
which the transaction occurs. The
Commission also noted that the filings
provided only broad general statements
regarding options transaction volume
and did not provide any information on
those exchanges’ historic or projected
options regulatory costs (including the
costs of regulating activity that cleared
in the ‘‘customer’’ range and the costs of
regulating activity that occurred off
exchange), the amount of regulatory
revenue they had generated and
expected to generate from the ORF as
well as other sources, or the ‘‘material
portion’’ of options regulatory expenses
that they sought to recover from the
ORF. Each of those exchanges withdrew
their filings, but continue charging ORF
today as discussed above. Since that
time, MEMX Options is the first new
options exchange to launch, and as
such, would be at an unfair competitive
disadvantage if it were not allowed to
charge the ORF to recover a material
portion, but not all, of the Exchange’s
regulatory costs for the supervision and
regulation of activity of its Members
which as noted above, is charged by all
16 currently operating options
exchanges. Given that the Exchange is
not in possession of the data it would
require in order to provide the
information the SEC requested in its
orders instituting proceedings to
determine whether to approve or
disapprove proposed rule changes to
modify the Options Regulatory Fee of
16 See Securities Exchange Act Release No. 87168
(September 30, 2019), 84 FR 53210 (October 4,
2019) (SR–Emerald–2019–29); Securities Exchange
Act Release No. 87167 (September 30, 2019), 84 FR
53189 (October 4, 2019) (SR–PEARL–2019–23);
Securities Exchange Act Release No. 87169
(September 30, 2019), 84 FR 53195 (October 4,
2019) (SR–MIAX–2019–35); Securities Exchange
Act Release No. 87170 (September 30, 2019), 84 FR
53213 (October 4, 2019) (SR–CBOE–2019–040);
Securities Exchange Act Release No. 87172
(September 30, 2019) 84 FR 53192 (October 4, 2019)
(SR–CboeEDGX–2019–051); Securities Exchange
Act Release No 87171 (September 30, 2019), 84 FR
53200 (October 4, 2019) (SR–C2–2019–018);
Securities Exchange Act Release No. 86832 (August
30, 2019), 84 FR 46980 (September 6, 2019) (SR–
NYSEArca–2019–49); Securities Exchange Act
Release No. 86833 (August 30, 2019) 84 FR 47029
(September 6, 2019) (SR–NYSEAMER–2019–27).
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other options exchanges,17 the Exchange
believes it appropriate to revisit its ORF
once it has the actual data and
experience that will be available upon
operating the Exchange and its
regulatory program.
As such, the Exchange proposes that
the ORF proposed herein will
automatically sunset on September 30,
2024, approximately one year after the
operative date. The Exchange believes
this will allow it the time to gather the
necessary data, including its actual
regulatory costs and revenues, as well as
the cost of regulating executions that
clear in a customer capacity and
executions that occur on away markets,
while also allowing it to adequately
cover a portion of the projected costs
associated with the regulation of its
Members. Such a process will inform
the Exchange’s approach to the ORF
after the sunset date. To reiterate, as a
new exchange, not having the
opportunity to fund its regulatory
program through the same regulatory fee
charged by every other options
exchange would place an undue
competitive disadvantage upon the
Exchange’s regulatory program and
options business as a whole. Further,
the Exchange emphasizes that other
exchanges will be charging ORF for
transactions occurring on MEMX
Options, and as such, it follows that the
Exchange that is primarily responsible
for monitoring those transactions should
also be able to charge the ORF for
activity occurring on its own market, as
well as transactions it surveils on away
markets. In particular, by adopting a
one-year sunset to its proposed ORF, the
Exchange will be the only options
exchange (of seventeen) that will be
required to demonstrate to the
Commission that the existing fee is
reasonable, equitably allocated and not
unfairly discriminatory in the next year.
Absent rulemaking by the Commission,
all other sixteen (16) options exchanges
will be able to continue charging ORF
as they do today, and as they have for
years.
The Exchange is proposing to
establish an ORF in the amount of
$0.0015 per contract side, to be
operative on September 27, 2023, which
is the date the Exchange’s options
platforms is scheduled to launch, and
that will automatically sunset on
September 30, 2024. The amount of the
proposed fee is based on historical
industry volume, projected volumes on
the Exchange, and projected Exchange
regulatory costs. As noted above, the
Exchange will continually gather
relevant data throughout the sunset
17 See
PO 00000
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68695
period and review its ORF to ensure that
the ORF, in combination with its other
regulatory fees and fines, does not
exceed regulatory costs. The Exchange
believes that this proposal will permit
the Exchange to cover a material portion
of its regulatory costs, while not
exceeding regulatory costs, and gather
the necessary data to provide the
Commission evidence to inform its
approach to the ORF after the sunset
period.
The Exchange notified current and
future Members via a Regulatory
Circular of the proposed ORF at least 30
calendar days prior to the proposed
operative date, on August 1, 2023.18 The
Exchange believes that the prior
notification to future market
participants will ensure that the future
market participants are prepared to
configure their systems to properly
account for the proposed ORF.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 19
in general, and furthers the objectives of
Section 6(b)(4) of the Act 20 in
particular, in that it is an equitable
allocation of reasonable dues, fees, and
other charges among its members and
issuers and other persons using its
facilities. The Exchange also believes
the proposal furthers the objectives of
Section 6(b)(5) of the Act 21 in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers.
The Exchange believes that
establishing an ORF in the amount of
$0.0015 is reasonable because the
Exchange’s collection of ORF needs to
be balanced against the amount of
projected regulatory costs incurred by
the Exchange. The Exchange believes
that the amount proposed herein will
serve to balance the Exchange’s
regulatory revenue against the
anticipated regulatory costs. Moreover,
the proposed amount is lower than the
18 See MEMX Options Regulatory Notice 23–07,
https://info.memxtrading.com/regulatory-notice-2307-memx-options-options-regulatory-fee/, MEMX
Options Regulatory Notice 23–10, https://
info.memxtrading.com/regulatory-notice-23-10options-regulatory-fee-effective-date/, and MEMX
Options Regulatory Notice 23–15, https://
info.memxtrading.com/regulatory-notice-23-15options-regulatory-fee-effective-date/.
19 15 U.S.C. 78f(b).
20 15 U.S.C. 78f(b)(4).
21 15 U.S.C. 78f(b)(5).
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amount of ORF assessed on other
exchanges.22 The Exchange notes that
while certain options exchanges do
charge a lower ORF than that proposed
by the Exchange, each of these options
exchanges is part of an exchange
‘‘group’’ (i.e., affiliated with other
options exchanges). In turn, each of
these exchange groups charges more
than two (2) to five (5) times the amount
of ORF as a group when compared to
the Exchange’s proposed ORF rate.23
While the Exchange understands and
agrees that each additional options
exchange is its own legal entity with
regulatory obligations under the Act to
regulate its members, the Exchange also
believes that there is significant scale
that can be achieved for an exchange
group that operates multiple exchanges,
including with respect to regulation,
and that it is this scale that allows such
options exchanges to operate with such
a low assessment of ORF. In other
words, the initial fixed costs associated
with implementing an exchange group’s
options regulatory program are scalable
as additional options exchanges are
launched by that exchange group.
The Exchange believes the proposed
ORF is equitable and not unfairly
discriminatory because it is objectively
allocated to Members in that it is
charged to all Members on all their
transactions that clear as customer at the
OCC. Moreover, the Exchange believes
the ORF ensures fairness by assessing
fees to those Members that are directly
22 See, e.g., NYSE Arca Options Fees and Charges,
Options Regulatory Fee (‘‘ORF’’) and NYSE
American Options Fees Schedule, Section VII(A),
which provide that ORF is assessed at a rate of
$0.0055 per contract for each respective exchange.
See also Nasdaq PHLX, Options 7 Pricing Schedule,
Section 6(D), which provides for an ORF rate of
$0.0034 per contract, Cboe Options Fee Schedule,
which provides an ORF rate of $0.0030 per contract,
Nasdaq Options Market, Options 7 Pricing
Schedule, Section 5, which provides an ORF rate
of $0.0016 per contract, BOX Options Fee Schedule
Section II(C), which provides an ORF rate of
$0.00295 per contract, MIAX Options Fee Schedule,
Section 2(b), which provides an ORF rate of $0.0019
per contract, MIAX Pearl Fee Schedule, Section
2(b), which provides an ORF rate of $0.0018 per
contract.
23 Each of MIAX Emerald, Cboe BZX Options,
Cboe C2 Options, Cboe EDGX Options, Nasdaq ISE
Gemini, Nasdaq ISE and Nasdaq BX Options
charges a lower rate than $0.0015 per contract,
which is the rate proposed by the Exchange.
However, the Cboe exchanges, comprised of four
options exchanges, charges an aggregate ORF rate of
$0.0034 per contract (over 2 times the Exchange’s
proposed rate), the MIAX exchanges, comprised of
three options exchanges, charges an aggregate ORF
rate of $0.0043 per contract (nearly 3 times the
Exchange’s proposed rate); and the Nasdaq
exchanges, comprised of six options exchanges,
charges an aggregate ORF rate of $0.0084 per
contract (nearly 6 times the Exchange’s proposed
rate). The Exchange notes that the NYSE exchanges,
comprised of two options exchanges, charges an
aggregate ORF rate of $0.011 per contract (over 7
times the Exchange’s proposed rate).
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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 noncustomer trading activity, which tends
to be more automated and less laborintensive. 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. Again, the
Exchange intends to quantify the
amount of time and resources spent on
customer trading activity during the
sunset period.
The ORF is designed to recover a
material portion of the costs of
supervising and regulating Members’
customer options business including
performing routine surveillances and
investigations, as well as policy,
rulemaking, interpretive, and
enforcement activities. The Exchange
will monitor the amount of revenue
collected from the ORF to ensure that it,
in combination with its other regulatory
fees and fines, does not exceed the
Exchange’s total regulatory costs. The
Exchange has designed the ORF to
generate revenues that, when combined
with all of the Exchange’s other
regulatory fees, will be less than 75% of
the Exchange’s regulatory costs, which
is consistent with the Exchange’s bylaws that state in Section 17.4(b): ‘‘[a]ny
Regulatory Funds shall not be used for
non-regulatory purposes or distributed,
advanced or allocated to any Company
Member, but rather, shall be applied to
fund regulatory operations of the
Company (including surveillance and
enforcement activities). . .’’ 24. In this
regard, the Exchange believes that the
amount of the fee is reasonable.
The Exchange believes that the
proposal to limit changes to the ORF to
twice a year with advance notice is
reasonable because it will give
participants certainty on the timing of
changes, if any, and better enable them
to properly account for ORF charges
among their customers. The Exchange
believes that limiting changes to the
ORF to twice a year is equitable and not
unfairly discriminatory because it will
apply in the same manner to all
Members that are subject to the ORF and
provide them with additional advance
notice of changes to that fee.
24 See MEMX LLC—LLC Agreement at https://
info.memxtrading.com/regulation/governance/.
PO 00000
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The Exchange believes that the
proposal to collect the ORF from nonMembers when such non-Members
ultimately clear the transaction (that is,
when the non-Member is the ‘‘ultimate
clearing firm’’ for a transaction in which
a Member was assessed the ORF), is an
equitable allocation of reasonable dues,
fees, and other charges among its
members and issuers and other persons
using its facilities. The Exchange notes
that there is a material distinction
between ‘‘assessing’’ the ORF and
‘‘collecting’’ the ORF. The Exchange
does not assess the ORF to nonMembers in any instance. For all
executions, regardless of where they
occur, the ORF is collected from the
ultimate clearing firm, regardless of
whether that clearing firm is a Member,
but only if the original executing
clearing firm is a Member. If the original
executing clearing firm is a not a
Member, no ORF is assessed or
collected. If the original executing
clearing firm is a Member, while the
ORF may be collected from the ultimate
non-Member clearing firm, the ORF is
assessed to the Member executing
clearing firm. The Exchange believes
that this collection practice is
reasonable and appropriate, given its
broad regulatory responsibilities with
respect to its Members activity, as well
as the fact that this collection method
was originally instituted for the benefit
of clearing firms that desired to have the
ORF be collected from the clearing firm
that ultimately clears the transaction.
The Exchange believes that
implementing the proposed ORF with a
sunset date of approximately one year
after the operative date is reasonable
because it will give the Exchange
adequate time to collect and analyze
pertinent data while ensuring the
Exchange, as a new entrant into equity
options trading, is able to adequately
fund its regulatory program to the same
extent as its competitors. As noted
above, by adopting a one-year sunset to
its proposed ORF, the Exchange will be
the only options exchange (of
seventeen) that will be required to
demonstrate to the Commission that the
existing fee is reasonable, equitably
allocated and not unfairly
discriminatory in the next year. Absent
rulemaking by the Commission, all
other sixteen (16) options exchanges
will be able to continue charging ORF
as they do today, and as they have for
years. Further, the Exchange emphasizes
that other exchanges will be charging
ORF for transactions occurring on
MEMX Options, and as such, it follows
that the Exchange that is primarily
responsible for monitoring those
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transactions should also be able to
charge the ORF for activity occurring on
its own market, as well as transactions
it surveils on away markets.
The Exchange believes that
implementing the ORF with the sunset
provision is equitable and not unfairly
discriminatory because it will apply in
the same manner to all Members that are
subject to the ORF and the Exchange
will provide such Members with
advance notice of any changes to the
ORF imposed by the Exchange.
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 will not create an unnecessary
or inappropriate intra-market burden on
competition because the ORF will apply
to all customer activity, and is designed
to enable the Exchange to recover a
material portion of the Exchange’s cost
related to its regulatory activities. This
proposal will not create an unnecessary
or inappropriate inter-market burden on
competition because it will be a
regulatory fee that supports regulation
and customer protection 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. Unilateral
action by the Exchange in establishing
fees for services provided to its
Members and others using its facilities
will not have an impact on competition.
The Exchange’s proposed ORF, as
described herein, is lower than or
comparable to fees charged by other
options exchanges (though as noted
above, some exchange groups do have
options exchanges operating with a
lower ORF on a standalone basis). The
proposal to limit the changes to the ORF
to twice a year with advance notice is
not intended to address a competitive
issue but rather to provide Members
with better notice of any change that the
Exchange may make to the ORF.
The Exchange notes that while it does
not believe that its proposed ORF will
impose any burden on inter-market
competition, the Exchange not charging
an ORF or being precluded from
charging an ORF would, in-fact,
represent a significant burden on
competition. As noted above, the
Exchange is a new entrant in the highly
competitive environment for equity
options trading. As also noted above, all
sixteen (16) registered options
exchanges currently impose ORF on
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their members, and, similar to the
Exchange, the majority of the options
exchanges launched over the last decade
have implemented an ORF on the day
of launch or shortly thereafter.25 Upon
the launch of the Exchange, such ORF
fees imposed by other options
exchanges will extend to executions
occurring on the Exchange. The
Exchange believes that in order to
compete with these existing options
exchanges, it must, in fact, impose an
ORF on its Members, and that the
inability to do so would result in an
unfair competitive disadvantage to the
Exchange. Given the Commission’s
questions, as articulated in various
orders instituting proceedings, the
Exchange has proposed its ORF with a
sunset that will allow the Exchange the
time to gather the necessary data,
including its actual regulatory costs and
revenues, as well as the cost of
regulations executions that clear in the
customer capacity and executions that
occur on away markets, while also
allowing it to adequately cover a portion
of the projected costs associated with
the regulation of its Members.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 26 and Rule
19b–4(f)(2) 27 thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
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
25 See
supra, note 13.
U.S.C. 78s(b)(3)(A)(ii).
27 17 CFR 240.19b–4(f)(2).
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 rule-comments@
sec.gov. Please include file number SR–
MEMX–2023–25 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–MEMX–2023–25. 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–MEMX–2023–25 and should be
submitted on or before October 25, 2023
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–21934 Filed 10–3–23; 8:45 am]
BILLING CODE 8011–01–P
26 15
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28 17
E:\FR\FM\04OCN1.SGM
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]]>Agencies
[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68692-68697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21934]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98585; File No. SR-MEMX-2023-25]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule To Establish an Options Regulatory Fee
September 28, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 27, 2023, MEMX LLC (``MEMX'' or the ``Exchange'')
filed with the Securities and Exchange Commission (the ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (the
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c) to adopt
an Options Regulatory Fee (``ORF'') that would automatically sunset on
September 30, 2024. The Exchange proposes to implement the changes to
the Fee Schedule pursuant to this proposal on September 27, 2023. The
text of the proposed rule change is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------
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
In preparation for the launch of the Exchange's options market
(``MEMX Options''),\4\ the Exchange proposes to establish an ORF in the
amount of $0.0015 per contract side. The amount of the proposed fee is
based on historical industry volume, projected volumes on the Exchange,
and projected Exchange regulatory costs. The Exchange's proposed ORF
should balance the Exchange's regulatory revenue against the
anticipated regulatory costs. As discussed more fully below, the
Exchange proposes that the ORF will automatically sunset on September
30, 2024.
---------------------------------------------------------------------------
\4\ On August 8, 2022, the Commission approved SR-MEMX-2022-10,
which proposed rules for the trading of options on the Exchange. See
Securities Exchange Act Release No. 95445 (August 8, 2022), 87 FR
49894 (August 12, 2022) (SR-MEMX-2022-010). The Exchange plans to
launch MEMX Options in September of 2023.
---------------------------------------------------------------------------
The per-contract ORF will be collected by the Options Clearing
Corporation (``OCC'') on behalf of the Exchange for each options
transaction, cleared or ultimately cleared by an Exchange member in the
``customer'' range, regardless of the exchange on which the transaction
occurs. The ORF is collected from either: (1) a Member that was the
ultimate clearing firm \5\ for the transaction; or (2) a non-Member
that was the ultimate clearing firm where a Member was the executing
clearing firm \6\ for the transaction.
---------------------------------------------------------------------------
\5\ The Exchange takes into account any CMTA transfers when
determining the ultimate clearing firm for a transaction. CMTA or
Clearing Member Trade Assignment is a form of ``give up'' whereby
the position will be assigned to a specific clearing firm at the
OCC.
\6\ Throughout this filing, ``executing clearing firm'' means
the clearing firm through which the entering broker indicated that
the transaction would be cleared at the time it entered the original
order which executed, and that clearing firm could be a designated
``give up'', if applicable. The executing clearing firm may be the
ultimate clearing firm if no CMTA transfer occurs. If a CMTA
transfer occurs, however, the ultimate clearing firm would be the
clearing firm that the position was transferred to for clearing via
CMTA.
---------------------------------------------------------------------------
To illustrate how the ORF will be assessed and collected, the
Exchange provides the following set of examples.
1. For all transactions executed on the Exchange, if the ultimate
clearing firm is a Member of the Exchange, the ORF is assessed to and
collected from that Member. If the ultimate clearing firm is not a
Member of the Exchange, the ORF is collected from that non-Member
clearing firm but assessed to the executing clearing firm.
2. If the transaction is executed on an away exchange, the ORF is
only assessed and collected if either the executing clearing firm or
ultimate clearing firm are Members of the Exchange. If the ultimate
clearing firm is a Member of the Exchange, the ORF is assessed to and
collected from that ultimate clearing firm. If the ultimate clearing
firm is not a Member of the Exchange, the ORF is assessed to the
executing clearing firm (again, only if that executing clearing firm is
a Member of the Exchange), and collected from the ultimate clearing
firm. Thus, to reiterate, if neither the executing clearing firm nor
the ultimate clearing firm are members of the Exchange, no ORF is
assessed or collected.
Finally, the Exchange will not assess the ORF on outbound linkage
trades. ``Linkage trades'' are tagged in the Exchange's system, so the
Exchange can distinguish them from other trades. A customer order
routed to another exchange results in the appearance of two customer
trades, one from the originating exchange and one from the recipient
exchange. Charging ORF on both trades could result in double-
[[Page 68693]]
billing of ORF for a single customer order, thus the Exchange will not
assess ORF on outbound linkage trades in a linkage scenario.\7\
---------------------------------------------------------------------------
\7\ To clarify, as stated previously, the Exchange will assess
and collect the ORF for each customer options transaction that is
cleared by a Member of the Exchange, regardless of where the
transaction occurs. As such, transactions may fall into this
category that originated from customer orders entered on the
Exchange that were routed to and executed on an away market pursuant
to the Options Linkage Plan. However, the Exchange will not assess
the ORF in this instance on the original entering broker on MEMX
Options, which would result in a potential double billing. Instead,
the Exchange will only assess and collect from the ultimate clearing
firm, and only if the ultimate clearing firm or the executing
clearing firm is a MEMX Options Member (because the transaction
ultimately occurs on an away market).
---------------------------------------------------------------------------
As a practical matter, when a transaction that is subject to the
ORF is not executed on the Exchange, the Exchange lacks the information
necessary to identify the order entering member for that transaction.
There are countless order entering market participants, and each day
such participants can drop their connection to one market center and
establish themselves as participants on another. For these reasons, it
is not possible for the Exchange to identify, and thus assess fees such
as an ORF, on order entering participants on away markets on a given
trading day.
Clearing members, however, are distinguished from order entering
participants because they remain identified to the Exchange on
information the Exchange receives from the OCC regardless of the
identity of the order entering participant, their location, and the
market center on which they execute transactions. Therefore, the
Exchange believes it is more efficient for the operation of the
Exchange and for the marketplace as a whole to collect the ORF from
clearing members. Additionally, this collection method was originally
instituted for the benefit of clearing firms that desired to have the
ORF be collected from the clearing firm that ultimately clears the
transaction.
As discussed below, the Exchange believes it is appropriate to
charge the ORF only to transactions that clear as customer at the OCC.
The Exchange believes that its broad regulatory responsibilities with
respect to a Member's activities support applying the ORF to
transactions cleared but not executed by a Member. The Exchange's
regulatory responsibilities are the same regardless of whether a Member
enters an order that executes or clears a transaction executed on its
behalf. The Exchange will regularly review all such activities,
including performing surveillance for position limit violations, end of
day and intra-day manipulation, front-running, contrary exercise advice
violations and insider trading. These activities span across multiple
exchanges.
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of Members' customer
options business, including performing routine surveillances and
investigations, as well as policy, rulemaking, interpretive and
enforcement activities. The Exchange believes that revenue generated
from the ORF, when combined with all of the Exchange's other regulatory
fees and fines, will cover a material portion, but not all, of the
Exchange's regulatory costs. Regulatory costs include direct regulatory
expenses and certain indirect expenses for work allocated 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 surveillance, investigations and examinations.
The indirect expenses include support from personnel in such areas as
human resources, legal, information technology, facilities and
accounting as well as shared costs necessary to operate the Exchange
and to carry out its regulatory function, such as hardware, data center
costs and connectivity. The Exchange acknowledges that these indirect
expenses are also allocated towards other business operations, such as
providing connectivity and market data services, for which the Exchange
has also conducted a cost-based analysis. As such, when analyzing the
indirect expenses associated with its regulatory program, the Exchange
did not double-count any expenses, but instead, allocated a portion of
the cost not already allocated to other fees imposed by the Exchange.
Indirect expenses are anticipated to be approximately 24% of the total
regulatory costs for 2023 and 2024. Thus, direct expenses are
anticipated to be approximately 76% of the total regulatory costs for
2023 and 2024. The Exchange notes that its regulatory responsibilities
with respect to Member compliance with options sales practice rules
have been allocated to the Financial Industry Regulatory Authority
(``FINRA'') under a 17d-2 Agreement. The ORF is not designed to cover
the cost of options sales practice regulation. Finally, the Exchange
notes that it takes into account all regulatory sources of funding,
including fines collected by the Exchange in connection with
disciplinary matters, when determining the appropriate ORF rate.
The Exchange will monitor the amount of revenue collected from the
ORF to ensure that it, in combination with its other regulatory fees
and fines, does not exceed the Exchange's total regulatory costs. More
specifically, the Exchange will ensure that revenue generated from ORF
not exceed more than 75% of total annual regulatory costs. The Exchange
will monitor regulatory costs and revenues at a minimum on a semi-
annual basis. If the Exchange determines regulatory revenues exceed or
are insufficient to cover a material portion of its regulatory costs,
the Exchange will adjust the ORF by submitting a fee change filing to
the Commission. Going forward, the Exchange will notify Members of
adjustments to the ORF via regulatory circular at least 30 calendar
days prior to the effective date of the change.
The Exchange believes it is reasonable and appropriate for the
Exchange to charge the ORF for options transactions regardless of the
exchange on which the transactions occur. The Exchange has a statutory
obligation to enforce compliance by Members and their associated
persons under the Act and the rules of the Exchange and to surveil for
other manipulative conduct by market participants trading on the
Exchange. The Exchange will not be able to effectively surveil for such
conduct without looking at and evaluating activity across all options
markets. Many of the Exchange's market surveillance programs require
the Exchange to look at and evaluate activity across all options
markets, such as surveillance for position limit violations, end of day
and intra-day manipulation, front-running and contrary exercise advice
violations/expiring exercise declarations. While much of this activity
relates to the execution of orders, the ORF is assessed on and
collected from clearing firms. The Exchange, because it lacks access to
information on the identity of the entering firm for executions that
occur on away markets, believes it is appropriate to assess the ORF on
its Members' clearing activity, based on information the Exchange
receives from the OCC, including for away market activity. Among other
reasons, doing so better and more accurately captures activity that
occurs away from the Exchange but which may relate to activity
occurring on the Exchange. Without reviewing activity on a market-wide
basis, the Exchange would not be able to effectively identify
potentially problematic cross-market activity, with a portion occurring
on other options
[[Page 68694]]
exchanges and a portion on the Exchange. Again, the Exchange reiterates
that it will not collect the ORF on executions that occur on away
markets that are cleared by non-Members, except for the limited
scenario where a Member clears a transaction and ultimately ``gives-
up'' the trade to a non-Member via CMTA.\8\ The Exchange believes that
assessing the ORF on Member clearing firms equitably distributes the
collection of the ORF in a fair and reasonable manner.
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\8\ To reiterate, in this instance, the ORF would be collected
from the non-Member ultimate CMTA clearing firm but assessed to the
Member executing clearing firm.
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In addition to its own surveillance programs, the Exchange will
work with other SROs and exchanges on intermarket surveillance related
issues in connection with its regulatory program for options.
Specifically, the Exchange and other options exchanges are required to
populate a consolidated options audit trail (``COATS'') \9\ system in
order to surveil a Member's activities across markets. Further, through
its participation in the Intermarket Surveillance Group (``ISG''),\10\
the Exchange will share information and coordinate inquiries and
investigations with other exchanges designed to address potential
intermarket manipulation and trading abuses. The Exchange's
participation in ISG helps it to satisfy the requirement that it has
coordinated surveillance with markets on which security futures are
traded and markets on which any security underlying security futures
are traded to detect manipulation and insider trading.\11\
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\9\ COATS effectively enhances intermarket options surveillance
by enabling the options exchanges to reconstruct the market promptly
to effectively surveil certain rules.
\10\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by co-operatively
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.
\11\ See Section 6(h)(3)(I) of the Act.
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The Exchange believes that charging the ORF across markets will
avoid having Members direct their trades to other markets in order to
avoid the fee and to thereby avoid paying for their fair share for
regulation. If the ORF did not apply to activity across markets then a
Member would send their orders to the least cost, least regulated
exchange (to the extent permissible under the Options Linkage plan,
which, among other requirements, prohibits trading through of better
priced quotations). Other exchanges do impose a similar fee on their
member's [sic] activity, and their fees will extend to include the
activities of their own members on the Exchange. In other words, upon
launch of the Exchange, other exchanges will charge the ORF for
executions occurring on MEMX Options cleared by their customers.\12\ In
fact, all sixteen (16) registered options exchanges currently impose
ORF on their members, and, similar to the Exchange, the majority of the
options exchanges launched over the last decade have implemented an ORF
on the day of launch or shortly thereafter in order to properly fund
their regulatory programs.\13\
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\12\ See Securities Exchange Act Release Nos. 58817 (October 20,
2008), 73 FR 63744 (October 27, 2008) (SR-CBOE-2008-05) (notice of
filing and immediate effectiveness of Cboe Exchange, Inc. (``CBOE'')
adopting an ORF applicable to transactions across all options
exchanges); 61133 (December 9, 2009), 74 FR 66715 (December 16,
2009) (SR-Phlx-2009-100) (notice of filing and immediate
effectiveness of Nasdaq PHLX LLC (``Phlx'') adopting an ORF
applicable to transactions across all options exchanges); 61154
(December 11, 2009), 74 FR 67278 (December 18, 2009) (SR-ISE-2009-
105) (notice of filing and immediate effectiveness of Nasdaq ISE,
LLC (``ISE'') adopting an ORF applicable to transactions across all
options exchanges); 61388 (January 20, 2010), 75 FR 4431 (January
27, 2010) (SR-BX-2010-001) (notice of filing and immediate
effectiveness of Nasdaq OMX BX, Inc. (``BX'') adopting an ORF
applicable to transactions across all options exchanges); 70200
(August 14, 2013) 78 FR 51242 (August 20, 2013) (SR-Topaz-2013-01))
(notice of filing and immediate effectiveness of Nasdaq GEMX, LLC
(``GEMX''), formerly known as ISE Gemini and Topaz Exchange,
adopting an ORF applicable to transactions across all options
exchanges); 64400 (May 4, 2011), 76 FR 27118 (May 10, 2011) (SR-
NYSEAmex-2011-27) (notice of filing and immediate effectiveness of
NYSE Amex LLC (``NYSE AMEX'') adopting an ORF applicable to
transactions across all options exchanges); 64399 (May 4, 2011), 76
FR 27114 (May 10, 2011) (SR-NYSEArca-2011-20) (notice of filing and
immediate effectiveness of NYSE Arca, Inc. (``NYSE Arca'') adopting
an ORF applicable to transactions across all options exchanges);
65913 (December 8, 2011), 76 FR 77883 (December 14, 2011) (SR-
NASDAQ-2011-163) (notice of filing and immediate effectiveness of
Nasdaq Options Market (``NOM'') adopting an ORF applicable to
transactions across all options exchanges); 66979 (May 14, 2012), 77
FR 29740 (May 18, 2012) (SR-BOX-2012-002) (notice of filing and
immediate effectiveness of BOX Options Exchange LLC (``BOX'')
adopting an ORF applicable to transactions across all options
exchanges); 67596 (August 6, 2012), 77 FR 47902 (August 10, 2012)
(SR-C2-2012-023) (notice of filing and immediate effectiveness of C2
Options Exchange, Inc. (``C2'') adopting an ORF applicable to
transactions across all options exchanges); 68711 (January 23, 2013)
78 FR 6155 (January 29, 2013) (SR-MIAX-2013-01) (notice of filing
and immediate effectiveness of Miami International Securities
Exchange LLC (``MIAX'') adopting an ORF applicable to transactions
across all options exchanges); 74214 (February 5, 2015), 80 FR 7665
(February 11, 2015) (SR-BATS-2015-08) (notice of filing and
immediate effectiveness of Cboe BZX Exchange, Inc. (``BZX'')
formerly known as BATS, adopting an ORF applicable to transactions
across all options exchanges); 80025 (February 13, 2017) 82 FR 11081
(February 17, 2017) (SR-BatsEDGX-2017-04) (notice of filing and
immediate effectiveness of Cboe EDGX Exchange, Inc. (``EDGX'')
formerly known as Bats EDGX Exchange, Inc., adopting an ORF
applicable to transactions across all options exchanges); 80875
(June 7, 2017) 82 FR 27096 (June 13, 2017) (SR-PEARL-2017-26)
(notice of filing and immediate effectiveness of MIAX Pearl, LLC
(``MIAX Pearl'') adopting an ORF applicable to transactions across
all options exchanges); 85127 (February 13, 2019) 84 FR 5173
(February 20, 2019) (SR-MRX-2019-03) (notice of filing and immediate
effectiveness of Nasdaq MRX, LLC (``MRX'') adopting an ORF
applicable to transactions across all options exchanges); 85251
(March 6, 2019) 84 FR 8931 (March 12, 2019) (SR-EMERALD-2019-01)
(notice of filing and immediate effectiveness of MIAX Emerald LLC
(``MIAX Emerald'') adopting an ORF applicable to transactions across
all options exchanges).
\13\ MIAX Options--effective 1/2/13, launch 12/7/12; ISE Topaz--
effective 8/5/13, launch same; MIAX Pearl--effective 2/6/17, launch
same; MIAX Emerald--effective 3/1/19, launch same.
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The Exchange notes that there is established precedent for an SRO
charging a fee across markets, namely, FINRA's Trading Activity Fee
\14\ and the ORF assessed by other options exchanges including, but not
limited to, NYSE Amex, NYSE Arca, Cboe, BZX, EDGX, Phlx, Nasdaq ISE,
Nasdaq GEMX, MIAX and BOX.\15\ While the Exchange does not have all the
same regulatory responsibilities as FINRA, the Exchange believes that,
like other exchanges that have adopted an ORF, its broad regulatory
responsibilities with respect to a Member's activities, irrespective of
where their transactions take place, supports a regulatory fee
applicable to transactions on other markets. Unlike FINRA's Trading
Activity Fee, the ORF would apply only to a Member's customer options
transactions.
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\14\ See Securities Exchange Act Release No. 47946 (May 30,
2003), 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148).
\15\ See supra note 13.
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Additionally, the Exchange proposes to specify in the Fee Schedule
that the Exchange may only increase or decrease the ORF semi-annually.
In addition to submitting a proposed rule change to the Commission as
required by the Act to increase or decrease the ORF, the Exchange will
notify participants via a Regulatory Circular of any anticipated change
in the amount of the fee at least 30 calendar days prior to the
effective date of the change. The Exchange believes that by providing
guidance on the timing of any changes to the ORF, the Exchange would
make it easier for participants to ensure their systems are configured
to properly account for the ORF.
Lastly, the Exchange recognizes that in 2019, the Commission issued
suspensions of and orders instituting proceedings to determine whether
to approve or disapprove a proposed rule change to modify the Options
[[Page 68695]]
Regulatory Fee of NYSE American, NYSE Arca, MIAX, MIAX Pearl, MIAX
Emerald, Cboe, Cboe EDGX Options, and C2.\16\ Each of those exchanges
had filed to increase their ORF, and the Commission indicated that each
of those filings lacked detail and specificity, signaling that more
information was needed to speak to whether the proposed increased ORFs
were reasonable, equitably allocated and not unfairly discriminatory,
particularly given that the ORF is assessed on transactions that clear
in the ``customer'' range and regardless of the exchange on which the
transaction occurs. The Commission also noted that the filings provided
only broad general statements regarding options transaction volume and
did not provide any information on those exchanges' historic or
projected options regulatory costs (including the costs of regulating
activity that cleared in the ``customer'' range and the costs of
regulating activity that occurred off exchange), the amount of
regulatory revenue they had generated and expected to generate from the
ORF as well as other sources, or the ``material portion'' of options
regulatory expenses that they sought to recover from the ORF. Each of
those exchanges withdrew their filings, but continue charging ORF today
as discussed above. Since that time, MEMX Options is the first new
options exchange to launch, and as such, would be at an unfair
competitive disadvantage if it were not allowed to charge the ORF to
recover a material portion, but not all, of the Exchange's regulatory
costs for the supervision and regulation of activity of its Members
which as noted above, is charged by all 16 currently operating options
exchanges. Given that the Exchange is not in possession of the data it
would require in order to provide the information the SEC requested in
its orders instituting proceedings to determine whether to approve or
disapprove proposed rule changes to modify the Options Regulatory Fee
of other options exchanges,\17\ the Exchange believes it appropriate to
revisit its ORF once it has the actual data and experience that will be
available upon operating the Exchange and its regulatory program.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 87168 (September
30, 2019), 84 FR 53210 (October 4, 2019) (SR-Emerald-2019-29);
Securities Exchange Act Release No. 87167 (September 30, 2019), 84
FR 53189 (October 4, 2019) (SR-PEARL-2019-23); Securities Exchange
Act Release No. 87169 (September 30, 2019), 84 FR 53195 (October 4,
2019) (SR-MIAX-2019-35); Securities Exchange Act Release No. 87170
(September 30, 2019), 84 FR 53213 (October 4, 2019) (SR-CBOE-2019-
040); Securities Exchange Act Release No. 87172 (September 30, 2019)
84 FR 53192 (October 4, 2019) (SR-CboeEDGX-2019-051); Securities
Exchange Act Release No 87171 (September 30, 2019), 84 FR 53200
(October 4, 2019) (SR-C2-2019-018); Securities Exchange Act Release
No. 86832 (August 30, 2019), 84 FR 46980 (September 6, 2019) (SR-
NYSEArca-2019-49); Securities Exchange Act Release No. 86833 (August
30, 2019) 84 FR 47029 (September 6, 2019) (SR-NYSEAMER-2019-27).
\17\ See id.
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As such, the Exchange proposes that the ORF proposed herein will
automatically sunset on September 30, 2024, approximately one year
after the operative date. The Exchange believes this will allow it the
time to gather the necessary data, including its actual regulatory
costs and revenues, as well as the cost of regulating executions that
clear in a customer capacity and executions that occur on away markets,
while also allowing it to adequately cover a portion of the projected
costs associated with the regulation of its Members. Such a process
will inform the Exchange's approach to the ORF after the sunset date.
To reiterate, as a new exchange, not having the opportunity to fund its
regulatory program through the same regulatory fee charged by every
other options exchange would place an undue competitive disadvantage
upon the Exchange's regulatory program and options business as a whole.
Further, the Exchange emphasizes that other exchanges will be charging
ORF for transactions occurring on MEMX Options, and as such, it follows
that the Exchange that is primarily responsible for monitoring those
transactions should also be able to charge the ORF for activity
occurring on its own market, as well as transactions it surveils on
away markets. In particular, by adopting a one-year sunset to its
proposed ORF, the Exchange will be the only options exchange (of
seventeen) that will be required to demonstrate to the Commission that
the existing fee is reasonable, equitably allocated and not unfairly
discriminatory in the next year. Absent rulemaking by the Commission,
all other sixteen (16) options exchanges will be able to continue
charging ORF as they do today, and as they have for years.
The Exchange is proposing to establish an ORF in the amount of
$0.0015 per contract side, to be operative on September 27, 2023, which
is the date the Exchange's options platforms is scheduled to launch,
and that will automatically sunset on September 30, 2024. The amount of
the proposed fee is based on historical industry volume, projected
volumes on the Exchange, and projected Exchange regulatory costs. As
noted above, the Exchange will continually gather relevant data
throughout the sunset period and review its ORF to ensure that the ORF,
in combination with its other regulatory fees and fines, does not
exceed regulatory costs. The Exchange believes that this proposal will
permit the Exchange to cover a material portion of its regulatory
costs, while not exceeding regulatory costs, and gather the necessary
data to provide the Commission evidence to inform its approach to the
ORF after the sunset period.
The Exchange notified current and future Members via a Regulatory
Circular of the proposed ORF at least 30 calendar days prior to the
proposed operative date, on August 1, 2023.\18\ The Exchange believes
that the prior notification to future market participants will ensure
that the future market participants are prepared to configure their
systems to properly account for the proposed ORF.
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\18\ See MEMX Options Regulatory Notice 23-07, https://info.memxtrading.com/regulatory-notice-23-07-memx-options-options-regulatory-fee/, MEMX Options Regulatory Notice 23-10, https://info.memxtrading.com/regulatory-notice-23-10-options-regulatory-fee-effective-date/, and MEMX Options Regulatory Notice 23-15, https://info.memxtrading.com/regulatory-notice-23-15-options-regulatory-fee-effective-date/.
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2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \19\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \20\ in
particular, in that it is an equitable allocation of reasonable dues,
fees, and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act \21\ in that it is
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest and is not designed to permit unfair discrimination
between customers, issuers, brokers and dealers.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(4).
\21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that establishing an ORF in the amount of
$0.0015 is reasonable because the Exchange's collection of ORF needs to
be balanced against the amount of projected regulatory costs incurred
by the Exchange. The Exchange believes that the amount proposed herein
will serve to balance the Exchange's regulatory revenue against the
anticipated regulatory costs. Moreover, the proposed amount is lower
than the
[[Page 68696]]
amount of ORF assessed on other exchanges.\22\ The Exchange notes that
while certain options exchanges do charge a lower ORF than that
proposed by the Exchange, each of these options exchanges is part of an
exchange ``group'' (i.e., affiliated with other options exchanges). In
turn, each of these exchange groups charges more than two (2) to five
(5) times the amount of ORF as a group when compared to the Exchange's
proposed ORF rate.\23\ While the Exchange understands and agrees that
each additional options exchange is its own legal entity with
regulatory obligations under the Act to regulate its members, the
Exchange also believes that there is significant scale that can be
achieved for an exchange group that operates multiple exchanges,
including with respect to regulation, and that it is this scale that
allows such options exchanges to operate with such a low assessment of
ORF. In other words, the initial fixed costs associated with
implementing an exchange group's options regulatory program are
scalable as additional options exchanges are launched by that exchange
group.
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\22\ See, e.g., NYSE Arca Options Fees and Charges, Options
Regulatory Fee (``ORF'') and NYSE American Options Fees Schedule,
Section VII(A), which provide that ORF is assessed at a rate of
$0.0055 per contract for each respective exchange. See also Nasdaq
PHLX, Options 7 Pricing Schedule, Section 6(D), which provides for
an ORF rate of $0.0034 per contract, Cboe Options Fee Schedule,
which provides an ORF rate of $0.0030 per contract, Nasdaq Options
Market, Options 7 Pricing Schedule, Section 5, which provides an ORF
rate of $0.0016 per contract, BOX Options Fee Schedule Section
II(C), which provides an ORF rate of $0.00295 per contract, MIAX
Options Fee Schedule, Section 2(b), which provides an ORF rate of
$0.0019 per contract, MIAX Pearl Fee Schedule, Section 2(b), which
provides an ORF rate of $0.0018 per contract.
\23\ Each of MIAX Emerald, Cboe BZX Options, Cboe C2 Options,
Cboe EDGX Options, Nasdaq ISE Gemini, Nasdaq ISE and Nasdaq BX
Options charges a lower rate than $0.0015 per contract, which is the
rate proposed by the Exchange. However, the Cboe exchanges,
comprised of four options exchanges, charges an aggregate ORF rate
of $0.0034 per contract (over 2 times the Exchange's proposed rate),
the MIAX exchanges, comprised of three options exchanges, charges an
aggregate ORF rate of $0.0043 per contract (nearly 3 times the
Exchange's proposed rate); and the Nasdaq exchanges, comprised of
six options exchanges, charges an aggregate ORF rate of $0.0084 per
contract (nearly 6 times the Exchange's proposed rate). The Exchange
notes that the NYSE exchanges, comprised of two options exchanges,
charges an aggregate ORF rate of $0.011 per contract (over 7 times
the Exchange's proposed rate).
---------------------------------------------------------------------------
The Exchange believes the proposed ORF is equitable and not
unfairly discriminatory because it is objectively allocated to Members
in that it is charged to all Members on all their transactions that
clear as customer at the OCC. Moreover, the Exchange believes the ORF
ensures fairness by assessing fees to those Members that are directly
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. 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. Again, the Exchange intends to
quantify the amount of time and resources spent on customer trading
activity during the sunset period.
The ORF is designed to recover a material portion of the costs of
supervising and regulating Members' customer options business including
performing routine surveillances and investigations, as well as policy,
rulemaking, interpretive, and enforcement activities. The Exchange will
monitor the amount of revenue collected from the ORF to ensure that it,
in combination with its other regulatory fees and fines, does not
exceed the Exchange's total regulatory costs. The Exchange has designed
the ORF to generate revenues that, when combined with all of the
Exchange's other regulatory fees, will be less than 75% of the
Exchange's regulatory costs, which is consistent with the Exchange's
by-laws that state in Section 17.4(b): ``[a]ny Regulatory Funds shall
not be used for non-regulatory purposes or distributed, advanced or
allocated to any Company Member, but rather, shall be applied to fund
regulatory operations of the Company (including surveillance and
enforcement activities). . .'' \24\. In this regard, the Exchange
believes that the amount of the fee is reasonable.
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\24\ See MEMX LLC--LLC Agreement at https://info.memxtrading.com/regulation/governance/.
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The Exchange believes that the proposal to limit changes to the ORF
to twice a year with advance notice is reasonable because it will give
participants certainty on the timing of changes, if any, and better
enable them to properly account for ORF charges among their customers.
The Exchange believes that limiting changes to the ORF to twice a year
is equitable and not unfairly discriminatory because it will apply in
the same manner to all Members that are subject to the ORF and provide
them with additional advance notice of changes to that fee.
The Exchange believes that the proposal to collect the ORF from
non-Members when such non-Members ultimately clear the transaction
(that is, when the non-Member is the ``ultimate clearing firm'' for a
transaction in which a Member was assessed the ORF), is an equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities. The
Exchange notes that there is a material distinction between
``assessing'' the ORF and ``collecting'' the ORF. The Exchange does not
assess the ORF to non-Members in any instance. For all executions,
regardless of where they occur, the ORF is collected from the ultimate
clearing firm, regardless of whether that clearing firm is a Member,
but only if the original executing clearing firm is a Member. If the
original executing clearing firm is a not a Member, no ORF is assessed
or collected. If the original executing clearing firm is a Member,
while the ORF may be collected from the ultimate non-Member clearing
firm, the ORF is assessed to the Member executing clearing firm. The
Exchange believes that this collection practice is reasonable and
appropriate, given its broad regulatory responsibilities with respect
to its Members activity, as well as the fact that this collection
method was originally instituted for the benefit of clearing firms that
desired to have the ORF be collected from the clearing firm that
ultimately clears the transaction.
The Exchange believes that implementing the proposed ORF with a
sunset date of approximately one year after the operative date is
reasonable because it will give the Exchange adequate time to collect
and analyze pertinent data while ensuring the Exchange, as a new
entrant into equity options trading, is able to adequately fund its
regulatory program to the same extent as its competitors. As noted
above, by adopting a one-year sunset to its proposed ORF, the Exchange
will be the only options exchange (of seventeen) that will be required
to demonstrate to the Commission that the existing fee is reasonable,
equitably allocated and not unfairly discriminatory in the next year.
Absent rulemaking by the Commission, all other sixteen (16) options
exchanges will be able to continue charging ORF as they do today, and
as they have for years. Further, the Exchange emphasizes that other
exchanges will be charging ORF for transactions occurring on MEMX
Options, and as such, it follows that the Exchange that is primarily
responsible for monitoring those
[[Page 68697]]
transactions should also be able to charge the ORF for activity
occurring on its own market, as well as transactions it surveils on
away markets.
The Exchange believes that implementing the ORF with the sunset
provision is equitable and not unfairly discriminatory because it will
apply in the same manner to all Members that are subject to the ORF and
the Exchange will provide such Members with advance notice of any
changes to the ORF imposed by the Exchange.
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 will not create
an unnecessary or inappropriate intra-market burden on competition
because the ORF will apply to all customer activity, and is designed to
enable the Exchange to recover a material portion of the Exchange's
cost related to its regulatory activities. This proposal will not
create an unnecessary or inappropriate inter-market burden on
competition because it will be a regulatory fee that supports
regulation and customer protection 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.
Unilateral action by the Exchange in establishing fees for services
provided to its Members and others using its facilities will not have
an impact on competition. The Exchange's proposed ORF, as described
herein, is lower than or comparable to fees charged by other options
exchanges (though as noted above, some exchange groups do have options
exchanges operating with a lower ORF on a standalone basis). The
proposal to limit the changes to the ORF to twice a year with advance
notice is not intended to address a competitive issue but rather to
provide Members with better notice of any change that the Exchange may
make to the ORF.
The Exchange notes that while it does not believe that its proposed
ORF will impose any burden on inter-market competition, the Exchange
not charging an ORF or being precluded from charging an ORF would, in-
fact, represent a significant burden on competition. As noted above,
the Exchange is a new entrant in the highly competitive environment for
equity options trading. As also noted above, all sixteen (16)
registered options exchanges currently impose ORF on their members,
and, similar to the Exchange, the majority of the options exchanges
launched over the last decade have implemented an ORF on the day of
launch or shortly thereafter.\25\ Upon the launch of the Exchange, such
ORF fees imposed by other options exchanges will extend to executions
occurring on the Exchange. The Exchange believes that in order to
compete with these existing options exchanges, it must, in fact, impose
an ORF on its Members, and that the inability to do so would result in
an unfair competitive disadvantage to the Exchange. Given the
Commission's questions, as articulated in various orders instituting
proceedings, the Exchange has proposed its ORF with a sunset that will
allow the Exchange the time to gather the necessary data, including its
actual regulatory costs and revenues, as well as the cost of
regulations executions that clear in the customer capacity and
executions that occur on away markets, while also allowing it to
adequately cover a portion of the projected costs associated with the
regulation of its Members.
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\25\ See supra, note 13.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \26\ and Rule 19b-4(f)(2) \27\ thereunder.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78s(b)(3)(A)(ii).
\27\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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-MEMX-2023-25 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-MEMX-2023-25. 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-MEMX-2023-25 and should be
submitted on or before October 25, 2023
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21934 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
