Self-Regulatory Organizations; MEMX LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Its Fee Schedule To Establish an Options Regulatory Fee, 83590-83594 [2023-26263]
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Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Notices
the Medicare medical insurance (Part B)
program and paying the premiums for
their insurance coverage. Generally,
these individuals are categorically
needy under Medicaid and meet the
eligibility requirements for Medicare
Part B. States can also include in their
buy-in agreements, individuals who are
eligible for medical assistance only. The
RRB uses Form RL–380–F, Report to
State Medicaid Office, to obtain
information needed to determine if
certain railroad beneficiaries are entitled
to receive Supplementary Medical
Insurance program coverage under a
state buy-in agreement in states in
which they reside. Completion of Form
RL–380–F is voluntary. One response is
received from each respondent.
Previous Requests for Comments: The
RRB has already published the initial
60-day notice (88 FR 66068 on
Information Collection Request (ICR)
Title: Report of Medicaid State Office
on Beneficiary’s Buy-In Status.
OMB Control Number: 3220–0185.
Forms submitted: RL–380–F.
Type of request: Revision of a
currently approved collection.
Affected public: State, local, and
Tribal governments.
Abstract: Under the Railroad
Retirement Act, the Railroad Retirement
Board administers the Medicare
program for persons covered by the
railroad retirement system. The
collection obtains the information
needed to determine if certain railroad
beneficiaries are entitled to receive
Supplemental Medical Insurance
program coverage under a state buy-in
agreement in states in which they
reside.
Changes proposed: The RRB proposes
the following changes to Form RL–380–
F:
• Change ‘Medicare Number’ box on
righthand side of form to ‘Medicare
Beneficiary Identifier’.
• Remove box 6 on righthand side of
form ‘Social Security Number’ as it is a
duplicate of box 4 ‘Beneficiary’s Own
Social Security Number’.
• In Question 4, change ‘Medicare
number under which state paid
premium (if different from RRB
Medicare claim number’ to ‘Medicare
Beneficiary Identifier Number (MBI) in
which state paid premium’.
The burden estimate for the ICR is as
follows:
Form No.
Annual
responses
Time
(minutes)
Burden
(hours)
RL–380–F ..................................................................................................................
600
10
100
Additional Information or Comments:
Copies of the forms and supporting
documents can be obtained from
Kennisha Money at (312) 469–2591 or
Kennisha.Money@rrb.gov. Comments
regarding the information collection
should be addressed to Brian Foster,
Railroad Retirement Board, 844 North
Rush Street, Chicago, Illinois 60611–
1275 or Brian.Foster@rrb.gov.
Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to www.reginfo.gov/public/do/
PRAMain. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function.
Brian Foster,
Clearance Officer.
[FR Doc. 2023–26332 Filed 11–29–23; 8:45 am]
BILLING CODE 7905–01–P
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September 26, 2023) required by 44
U.S.C. 3506(c)(2). That request elicited
no comments.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99017; File No. SR–MEMX–
2023–25]
Self-Regulatory Organizations; MEMX
LLC; Suspension of and Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Amend Its
Fee Schedule To Establish an Options
Regulatory Fee
November 24, 2023.
I. Introduction
On September 27, 2023, MEMX LLC
(‘‘MEMX’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’),
pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change (file number SR–
MEMX–2023–25) to adopt an Options
Regulatory Fee (‘‘ORF’’).3 The proposed
rule change was immediately effective
upon filing with the Commission
pursuant to section 19(b)(3)(A) of the
Act.4 The proposed rule change was
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 98585
(September 28, 2023), 88 FR 68692 (October 4,
2023) (‘‘Notice’’).
4 15 U.S.C. 78s(b)(3)(A). A proposed rule change
may take effect upon filing with the Commission if
it is designated by the exchange as ‘‘establishing or
changing a due, fee, or other charge imposed by the
self-regulatory organization on any person, whether
2 17
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published for comment in the Federal
Register on October 4, 2023.5
Pursuant to section 19(b)(3)(C) of the
Act,6 the Commission is hereby: (1)
temporarily suspending file number SR–
MEMX–2023–25; and (2) instituting
proceedings to determine whether to
approve or disapprove file number SR–
MEMX–2023–25.
II. Description of the Proposed Rule
Change
The Exchange proposes to establish
an ORF in the amount of $0.0015 per
contract side.7 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 for the
transaction; or (2) a non-Member that
was the ultimate clearing firm where a
Member was the executing clearing firm
for the transaction.8
According to the Exchange, the
amount of the proposed ORF fee is
‘‘based on historical industry volume,
projected volumes on the Exchange, and
or not the person is a member of the self-regulatory
organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii).
5 See Notice, supra note 3.
6 15 U.S.C. 78s(b)(3)(C).
7 See Notice, supra note 3, at 68692.
8 Id.
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projected Exchange regulatory costs.’’ 9
The Exchange states that ‘‘revenue
generated from 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.’’ 10 The
Exchange notes that it will monitor the
amount of ORF revenue it collects ‘‘to
ensure that it, in combination with its
other regulatory fees and fines, does not
exceed the Exchange’s total regulatory
costs.’’ 11
The Exchange proposes that the ORF
will automatically sunset on September
30, 2024, approximately one year after
the operative date.12 The Exchange
believes this will allow it 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.’’ 13 According to the
Exchange, allowing the collection of
ORF from the outset of its operations on
September 27, 2023 until September 30,
2023, when the fee will automatically
sunset, will allow the Exchange to fund
its regulatory program and collect
evidence to provide to the Commission
and inform its approach to ORF after the
sunset period.14
III. Suspension of the Proposed Rule
Change
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Pursuant to section 19(b)(3)(C) of the
Act,15 at any time within 60 days of the
date of filing of an immediately effective
proposed rule change pursuant to
section 19(b)(1) of the Act,16 the
Commission summarily may
temporarily suspend the change in the
rules of a self-regulatory organization
(‘‘SRO’’) 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. As discussed below, the
Commission believes a temporary
suspension of the proposed rule change
is necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act to allow for
additional analysis of the proposed rule
9 Id.
at 68693.
10 Id.
11 Id.
12 Id. at 68692 and 68695.
13 Id. at 68695.
14 Id.
15 15 U.S.C. 78s(b)(3)(C).
16 15 U.S.C. 78s(b)(1).
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change’s consistency with the Act and
the rules thereunder.
When exchanges file their proposed
rule changes with the Commission,
including fee filings like the Exchange’s
present proposal, they are required to
provide a statement supporting the
proposal’s basis under the Act and the
rules and regulations thereunder
applicable to the exchange.17 The
instructions to Form 19b–4, on which
exchanges file their proposed rule
changes, specify that such statement
‘‘should be sufficiently detailed and
specific to support a finding that the
proposed rule change is consistent with
[those] requirements’’ 18
Section 6 of the Act, including
Sections 6(b)(4), (5), and (8), require the
rules of an exchange to: (1) provide for
the equitable allocation of reasonable
fees among members, issuers, and other
persons using the exchange’s
facilities; 19 (2) perfect the mechanism of
a free and open market and a national
market system, protect investors and the
public interest, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or
dealers; 20 and (3) not impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.21
In justifying its proposal, the
Exchange stated that establishing an
ORF in the amount of $0.0015 is
reasonable because it ‘‘will serve to
balance the Exchange’s regulatory
revenue against the anticipated
regulatory costs’’ and ‘‘is lower than the
amount of ORF assessed on other
exchanges.’’ 22 According to the
Exchange, its ORF is designed 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. . . .’’ 23
The Exchange also asserted that the
ORF is equitably allocated and not
17 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose
of, and Statutory Basis for, the Proposed Rule
Change’’).
18 Id.
19 15 U.S.C. 78f(b)(4).
20 15 U.S.C. 78f(b)(5).
21 15 U.S.C. 78f(b)(8).
22 See Notice, supra note 3, at 68695–96. Several
other exchanges have a lower ORF rate than that
proposed by the Exchange. See, e.g., Nasdaq ISE,
available at https://listingcenter.nasdaq.com/
rulebook/ise/rules/ISE%20Options%207 ($0.0013);
Nasdaq GEMX, available at Rules | Nasdaq GEMX
($0.0012); CboeEDGX, available at Cboe EDGX
Options Exchange Fee Schedule ($0.0001); and
MIAX Emerald, available at https://
www.miaxglobal.com/sites/default/files/fee_
schedule-files/MIAX_Emerald_Fee_Schedule_
10122023_3.pdf ($0.0006).
23 See Notice, supra note 3, at 68696.
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83591
unfairly discriminatory because ‘‘it is
charged to all Members on all their
transactions that clear as customer at the
OCC’’ and is ‘‘directly based on the
amount of customer options business
they conduct.’’ 24 In addition, the
Exchange stated that ‘‘[r]egulating
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.’’ 25
Further, the Exchange stated that it has
‘‘broad regulatory responsibilities with
respect to a Members’ activities,
irrespective of where their transactions
take place’’ and notes that it ‘‘will not
be able to effectively surveil [its
Members’] conduct without looking at
and evaluating activity across all
options markets.’’ 26 Consequently, the
Exchange imposes the ORF on all
customer-range transactions cleared by a
Member, even if the transactions do not
take place on the Exchange and
regardless of whether the transaction
was executed by a member.27
Furthermore, the Exchange notes 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.’’ 28
In temporarily suspending the
Exchange’s proposed rule change, the
Commission intends to further consider
whether the proposal to establish an
ORF in the amount of $0.0015 is
consistent with the statutory
requirements applicable to a national
securities exchange under the Act. In
particular, the Commission will
consider whether the proposed rule
change satisfies the standards under the
Act and the rules thereunder requiring,
among other things, that an exchange’s
rules provide for the equitable
allocation of reasonable fees among
members, issuers, and other persons
using its facilities; not permit unfair
discrimination between customers,
issuers, brokers or dealers; and do not
24 Id.
25 Id.
26 Id.
at 68693 and 68696.
The Exchange also states that its proposed
collection method which is similar to that utilized
by other options exchanges ‘‘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.’’
Id. at 68696.
28 Id. at 68697.
27 Id.
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Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Notices
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.29
Therefore, the Commission finds that
it is necessary or appropriate in the
public interest, for the protection of
investors, and otherwise in furtherance
of the purposes of the Act, to
temporarily suspend the proposed rule
change.30
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IV. Proceedings To Determine Whether
To Approve or Disapprove the
Proposed Rule Change
In addition to temporarily suspending
the proposal, the Commission also
hereby institutes proceedings pursuant
to sections 19(b)(3)(C) 31 and 19(b)(2)(B)
of the Act 32 to determine whether the
Exchange’s proposed rule change
should be approved or disapproved.
Institution of proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, the
Commission seeks and encourages
interested persons to provide additional
comment on the proposed rule change
to inform the Commission’s analysis of
whether to approve or disapprove the
proposed rule change.
Pursuant to section 19(b)(2)(B) of the
Act,33 the Commission is providing
notice of the grounds for possible
disapproval under consideration:
• Whether the Exchange has
demonstrated how its proposed fee is
consistent with section 6(b)(4) of the
Act, which requires that the rules of a
national securities exchange ‘‘provide
for the equitable allocation of
reasonable dues, fees, and other charges
among its members and issuers and
other persons using its facilities’’ 34
(emphasis added);
• Whether the Exchange has
demonstrated how its proposed fee is
29 See 15 U.S.C. 78f(b)(4), (5), and (8),
respectively.
30 For purposes of temporarily suspending the
proposed rule change, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
31 15 U.S.C. 78s(b)(3)(C). Once the Commission
temporarily suspends a proposed rule change,
section 19(b)(3)(C) of the Act requires that the
Commission institute proceedings under section
19(b)(2)(B) to determine whether a proposed rule
change should be approved or disapproved.
32 15 U.S.C. 78s(b)(2)(B).
33 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the
Act also provides that proceedings to determine
whether to disapprove a proposed rule change must
be concluded within 180 days of the date of
publication of notice of the filing of the proposed
rule change. See id. The time for conclusion of the
proceedings may be extended for up to 60 days if
the Commission finds good cause for such
extension and publishes its reasons for so finding,
or if the exchange consents to the longer period. See
id.
34 15 U.S.C. 78f(b)(4).
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consistent with section 6(b)(5) of the
Act, which requires, among other
things, that the rules of a national
securities exchange not be ‘‘designed to
permit unfair discrimination between
customers, issuers, brokers, or
dealers’’ 35 (emphasis added); and
• Whether the Exchange has
demonstrated how its proposed fee is
consistent with section 6(b)(8) of the
Act, which requires that the rules of a
national securities exchange ‘‘not
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of [the Act].’’ 36
As noted above, the Exchange
proposes to establish an ORF in the
amount of $0.0015 per contract side
‘‘based on historical industry volume,
projected volumes on the Exchange, and
projected Exchange regulatory costs.’’ 37
The Exchange also states that ‘‘revenue
generated from 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.38 However,
those and other statements in support of
its proposed establishment of an ORF
are general in nature and lack sufficient
detail and specificity.
For example, the Exchange does not
elaborate on the ‘‘material portion’’ of
options regulatory expenses that it seeks
to recover from the ORF and why the
threshold it selected (i.e., that ORF will
‘‘not exceed more than 75% of total
annual regulatory costs’’) correlates to
the degree of regulatory responsibility
and expenses borne by the Exchange as
it relates to the regulation of customer
options transactions.39 Further, the
Exchange has not provided any
quantifiable information to support its
assertion that regulating customer
trading activity is ‘‘much more laborintensive’’ and therefore, more costly.
The Exchange does not claim in its
filing that its regulation of customer
activity will consume 75% of total
regulatory costs nor does it assert that
customer activity will require a level of
effort that will occupy 75% of the
regulatory department’s attention.
Further, the Exchange does not
sufficiently analyze how funding 75%
of its total regulatory costs (including
direct and indirect expenses) from ORF
constitutes an equitable allocation of
reasonable fees among members, and it
does not provide sufficient detail to
35 15
U.S.C. 78f(b)(5).
U.S.C. 78f(b)(8).
37 See Notice, supra note 3, at 68692.
38 Id. at 68693.
39 See Notice, supra note 3, at 68693.
allow the Commission and commenters
to consider those issues.
Further, the Exchange has not
provided specific or detailed
information regarding the anticipated
regulatory cost associated with
regulating, monitoring, and surveilling
on-exchange activity compared to
activity that takes place on other
exchanges (which exchanges assess
their own ORF on those trades). In
particular, the Exchange proposes to
collect ORF on executions that do not
occur on the Exchange. The proposed
ORF rate is the same for on-exchange
and off-exchange activity, so the
proposal will result in the Exchange at
least initially funding a very significant
portion of its total regulatory costs from
a fee charged on contracts that execute
away from the Exchange. The Exchange
does not provide a sufficiently detailed
analysis or present specific facts to
show the level of regulatory effort and
regulatory costs it would expend on
contracts that execute on other
exchanges. Without more information in
the filing on the Exchange’s projected
regulatory revenues, regulatory costs,
and regulatory activities to supervise
and regulate members, specifically, e.g.,
customer versus non-customer activity
and on-exchange versus off-exchange
activity, the proposal lacks specific
information that can speak to whether
the proposed ORF is reasonable,
equitably allocated, and not unfairly
discriminatory, particularly given that
the ORF is assessed only on transactions
that clear in the ‘‘customer’’ range and
regardless of the exchange on which the
transaction occurs.
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the [Act] and the rules
and regulations issued thereunder . . .
is on the [SRO] that proposed the rule
change.’’ 40 The description of a
proposed rule change, its purpose and
operation, its effect, and a legal analysis
of its consistency with applicable
requirements must all be sufficiently
detailed and specific to support an
affirmative Commission finding,41 and
any failure of an SRO to provide this
information may result in the
Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.42
As explained above, the Exchange’s
statements in support of the proposed
rule change are general in nature and
36 15
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40 17
CFR 201.700(b)(3).
id.
42 See id.
41 See
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lack detail and specificity. The
Commission cannot unquestionably rely
on an exchange’s statements and
representations.43 Instead, the
Commission needs sufficient
information to support independent
findings that a proposal is consistent
with the requirements of the Act.44
Here, such an analysis includes, among
other things, whether the proposed ORF
is an equitable allocation of reasonable
dues, fees, and other changes among the
Exchange’s members, as well as whether
the proposed ORF is equitable and not
unfairly discriminatory.
The Commission needs additional
information from the Exchange to
demonstrate how the proposal meets
those and other applicable requirements
of the Act, to assess whether the
Exchange has established a sufficient
nexus between the proposed ORF and
the Exchange’s regulation of customer
trading activity both on and off
exchange. While the Commission
broadly solicits comment from all
interested parties on the proposal, the
Commission believes that the Exchange
alone has access to much of the specific
detail necessary to fully address these
questions and concerns because these
matters involve qualitative and
quantitative information about the
Exchange’s operations. Specifically,
among other things, the Commission
asks that commenters address the
sufficiency of the Exchange’s statements
in support of the proposal contained in
the Notice.45 In particular, the
Commission seeks comment on the
following aspects of the proposal and
asks commenters to submit data where
appropriate to support their views:
1. Information on the Exchange’s
Projected Regulatory Costs and
Revenues. The Exchange states that its
proposed ORF rate is reasonable based
on historical industry volume, projected
volumes on the Exchange, and projected
Exchange regulatory costs. The
Exchange notes that its regulatory costs
would include direct regulatory
expenses and certain indirect expenses
for work ‘‘allocated in support of the
regulatory function.’’ 46 According to the
Exchange, indirect regulatory expenses
(including, among other things, human
resources, legal, information technology,
facilities and accounting, as well as
certain shared expenses necessary to
operate the Exchange and carry out its
regulatory function) are anticipated to
be approximately 24% of the Exchange’s
43 See Susquehanna Int’l Grp., LLP v. SEC, 866
F.3d 442, 447 (August 8, 2017).
44 See id.
45 See Notice, supra note 3.
46 See Notice, supra note 3, at 68693.
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total regulatory costs for 2023 and 2024
and direct regulatory expenses are
anticipated to be approximately 76% of
the Exchange’s total regulatory costs for
2023 and 2024.47 Do commenters
believe the Exchange has provided
adequate detail regarding these metrics?
If not, what additional information
should be provided to demonstrate how
the proposal is consistent with the Act?
2. Information on the Exchange’s
Imposition of ORF on Customer Orders.
The Exchange states that it will ensure
that revenue generated from ORF not
exceed more than 75% of total annual
regulatory costs.48 Do commenters
believe that the Exchange has
sufficiently analyzed and justified its
proposal to fund 75% of its total
regulatory expenses from a fee imposed
only on options transactions clearing in
the customer-range, where those
expenses include the regulation of
transactions that clear in the noncustomer-range (e.g., broker-dealer and
market maker trades)? In addition,
explaining that the proposed ORF
would be charged to ‘‘all Members on
all their transactions that clear as
customer at the OCC,’’ the Exchange
states that such methodology ‘‘ensures
fairness by assessing fees to those
Members that are directly based on the
amount of customer options business
they conduct.’’ 49 The Exchange further
asserts that ‘‘[r]egulating 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.’’ 50
According to the Exchange, ‘‘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.’’ 51 Do commenters
believe that the Exchange has provided
sufficiently detailed quantitative and
qualitative evidence in support of this
aspect of its proposal? Specifically,
examples of information that would be
helpful to demonstrate how the
assessment of ORF only on orders that
clear in the customer-range correlates to
the level of effort and costs the
Exchange expends to regulate customer
options transactions include: (a) the
percentage of volume expected to clear
47 Id.
48 See
49 Id.
id.
at 68696.
in the customer-range both on and off
the Exchange compared to the
percentage of volume expected to clear
in a range other than customer both on
and off the Exchange; (b) the percentage
of the Exchange’s regulatory budget that
would be attributable to the regulation
of orders that are expected to clear in
the customer-range compared to the
percentage of the Exchange’s regulatory
budget that would be attributable to
orders that are expected to clear in a
range other than customer; (c) the
anticipated percentage of the Exchange’s
regulatory level of effort that would be
attributable to the regulation of orders
that are expected to clear in the
customer-range compared to the
anticipated percentage of the Exchange’s
regulatory level effort that would be
attributable to orders that are expected
to clear in a range other than customer;
and (d) the proportion of the Exchange’s
revenues, as reported in the most recent
annual financials it submitted on
Form1, that would be represented by
expected ORF revenues if those
revenues had been included in the most
recent annual financials.
3. Information on the Exchange’s
Assessment of ORF on Away-Market
Activity. The Exchange states that it has
‘‘broad regulatory responsibilities with
respect a Member’s activities,
irrespective of where their transactions
take place. . . .’’ 52 The Exchange
therefore believes that it is appropriate
to impose the ORF even where the
transaction does not take place on the
Exchange.53 Do commenters believe that
the Exchange has provided sufficiently
detailed quantitative and qualitative
evidence in support of how the
assessment of ORF on away-market
transactions correlates to the effort it
will expend on regulating away-market
transactions compared to the level of
effort the Exchange will invest in
regulating transactions on Exchange?
Specifically, examples of information
that would be helpful to assess the
application of the ORF to executions
that do not occur on the Exchange
include: (a) the projected percentage of
the Exchange’s overall regulatory budget
that is expected to be attributable to
regulating away-market transactions
compared to the projected percentage of
the Exchange’s overall regulatory budget
that is expected to be attributable to
regulating on-Exchange transactions; (b)
the projected percentage of the
Exchange’s regulatory level of effort that
is expected to be attributable to the
regulation of away-market transactions
compared to the projected percentage of
50 Id.
52 See
51 Id.
53 See
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Fmt 4703
Sfmt 4703
83593
E:\FR\FM\30NON1.SGM
id. at 68694.
id.
30NON1
khammond on DSKJM1Z7X2PROD with NOTICES
83594
Federal Register / Vol. 88, No. 229 / Thursday, November 30, 2023 / Notices
the Exchange’s regulatory level of effort
that is expected to be attributable to the
regulation of orders that execute on the
Exchange; (c) the anticipated percentage
of ORF revenue that is expected to be
derived from away-market transactions
compared to the anticipated percentage
of ORF revenue that is expected to be
derived from executions on the
Exchange; and (d) more detail on the
regulatory activities the exchange
expects to perform for trades that do not
occur on the Exchange.
4. Information on the Exchange’s
Regulatory Program Concerning
Clearing Brokers. The Exchange states
that ORF is collected on ‘‘customer
range’’ options transactions cleared or
ultimately cleared by an Exchange
member regardless of the exchange on
which the transaction occurs.54 The
Exchange also will collect ORF from a
non-Member clearing broker where a
member was the executing firm and a
non-Member was the ultimate clearing
firm. Do commenters believe that the
Exchange has provided sufficiently
detailed quantitative and qualitative
evidence in support of this aspect of its
proposal? Specifically, examples of
information that would be helpful to
provide context for the collection of
ORF from member and non-member
clearing brokers and determine whether
a sufficient nexus exists between the
ORF and the Exchange’s regulation of
clearing activity, include: (a) the
percentage of the Exchange’s regulatory
expenses and level of regulatory activity
that is expected to pertain to clearance
and settlement activity and the
percentage this is expected to account
for with respect to the Exchange’s
overall regulatory costs and regulatory
activity, and if that differs depending on
whether the ultimate clearing firm is an
Exchange member or not and whether
the contract executes on the Exchange
or not; (b) the number of ‘‘ultimate
clearing firms’’ that are Exchange
members compared to the number of
‘‘ultimate clearing firms’’ that are nonMembers from which ORF is expected
to be collected on behalf of the
Exchange; and (c) the percentage of ORF
revenues that is expected to be collected
from Member clearing firms compared
to the percentage of ORF revenue that is
expected to be collected from nonMember clearing firms.
The Commission is instituting
proceedings to allow for additional
consideration and comment on the
issues raised herein, including as to
whether the proposed fees are
consistent with the Act, and
specifically, with the requirements that
54 See
id. at 68692.
VerDate Sep<11>2014
17:22 Nov 29, 2023
Jkt 262001
exchange fees be reasonable, equitably
allocated, and not unfairly
discriminatory.55
V. Commission’s Solicitation of
Comments
The Commission requests written
views, data, and arguments with respect
to the concerns identified above as well
as any other relevant concerns. Such
comments should be submitted by
December 21, 2023. Rebuttal comments
should be submitted by January 4, 2024.
Although there do not appear to be any
issues relevant to approval or
disapproval which would be facilitated
by an oral presentation of views, data,
and arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.56
The Commission asks that
commenters address the sufficiency and
merit of the Exchange’s statements in
support of the proposal, in addition to
any other comments they may wish to
submit about the proposed rule change.
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 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
55 See
15 U.S.C. 78f(b)(4), (5), and (8).
U.S.C. 78s(b)(2). Section 19(b)(2) of the Act
grants the Commission flexibility to determine what
type of proceeding—either oral or notice and
opportunity for written comments—is appropriate
for consideration of a particular proposal by an
SRO. See Securities Acts Amendments of 1975,
Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249,
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
56 15
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
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 December 21,
2023. Rebuttal comments should be
submitted by January 4, 2024.
VI. Conclusion
It is therefore ordered, pursuant to
section 19(b)(3)(C) of the Act,57 that file
number SR–MEMX–2023–25, be and
hereby is, temporarily suspended. In
addition, the Commission is instituting
proceedings to determine whether the
proposed rule change should be
approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023–26263 Filed 11–29–23; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #20114 and #20115;
California Disaster Number CA–20002]
Presidential Declaration of a Major
Disaster for Public Assistance Only for
the State of California
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a Notice of the
Presidential declaration of a major
disaster for Public Assistance Only for
the State of California (FEMA–4750–
DR), dated 11/21/2023.
SUMMARY:
57 15
58 17
E:\FR\FM\30NON1.SGM
U.S.C. 78s(b)(3)(C).
CFR 200.30–3(a)(57) and (58).
30NON1
]]>Agencies
[Federal Register Volume 88, Number 229 (Thursday, November 30, 2023)]
[Notices]
[Pages 83590-83594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26263]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99017; File No. SR-MEMX-2023-25]
Self-Regulatory Organizations; MEMX LLC; Suspension of and Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend Its Fee Schedule To Establish an Options
Regulatory Fee
November 24, 2023.
I. Introduction
On September 27, 2023, MEMX LLC (``MEMX'' or the ``Exchange'')
filed with the Securities and Exchange Commission (the ``Commission''),
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change
(file number SR-MEMX-2023-25) to adopt an Options Regulatory Fee
(``ORF'').\3\ The proposed rule change was immediately effective upon
filing with the Commission pursuant to section 19(b)(3)(A) of the
Act.\4\ The proposed rule change was published for comment in the
Federal Register on October 4, 2023.\5\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 98585 (September 28,
2023), 88 FR 68692 (October 4, 2023) (``Notice'').
\4\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take
effect upon filing with the Commission if it is designated by the
exchange as ``establishing or changing a due, fee, or other charge
imposed by the self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory organization.''
15 U.S.C. 78s(b)(3)(A)(ii).
\5\ See Notice, supra note 3.
---------------------------------------------------------------------------
Pursuant to section 19(b)(3)(C) of the Act,\6\ the Commission is
hereby: (1) temporarily suspending file number SR-MEMX-2023-25; and (2)
instituting proceedings to determine whether to approve or disapprove
file number SR-MEMX-2023-25.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to establish an ORF in the amount of $0.0015
per contract side.\7\ 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 for the transaction; or (2) a non-
Member that was the ultimate clearing firm where a Member was the
executing clearing firm for the transaction.\8\
---------------------------------------------------------------------------
\7\ See Notice, supra note 3, at 68692.
\8\ Id.
---------------------------------------------------------------------------
According to the Exchange, the amount of the proposed ORF fee is
``based on historical industry volume, projected volumes on the
Exchange, and
[[Page 83591]]
projected Exchange regulatory costs.'' \9\ The Exchange states that
``revenue generated from 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.'' \10\ The Exchange notes that
it will monitor the amount of ORF revenue it collects ``to ensure that
it, in combination with its other regulatory fees and fines, does not
exceed the Exchange's total regulatory costs.'' \11\
---------------------------------------------------------------------------
\9\ Id. at 68693.
\10\ Id.
\11\ Id.
---------------------------------------------------------------------------
The Exchange proposes that the ORF will automatically sunset on
September 30, 2024, approximately one year after the operative
date.\12\ The Exchange believes this will allow it 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.'' \13\ According to the Exchange,
allowing the collection of ORF from the outset of its operations on
September 27, 2023 until September 30, 2023, when the fee will
automatically sunset, will allow the Exchange to fund its regulatory
program and collect evidence to provide to the Commission and inform
its approach to ORF after the sunset period.\14\
---------------------------------------------------------------------------
\12\ Id. at 68692 and 68695.
\13\ Id. at 68695.
\14\ Id.
---------------------------------------------------------------------------
III. Suspension of the Proposed Rule Change
Pursuant to section 19(b)(3)(C) of the Act,\15\ at any time within
60 days of the date of filing of an immediately effective proposed rule
change pursuant to section 19(b)(1) of the Act,\16\ the Commission
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary
suspension of the proposed rule change is necessary or appropriate in
the public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Act to allow for additional analysis
of the proposed rule change's consistency with the Act and the rules
thereunder.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(3)(C).
\16\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchange's present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\17\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements'' \18\
---------------------------------------------------------------------------
\17\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
\18\ Id.
---------------------------------------------------------------------------
Section 6 of the Act, including Sections 6(b)(4), (5), and (8),
require the rules of an exchange to: (1) provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \19\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \20\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\21\
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b)(4).
\20\ 15 U.S.C. 78f(b)(5).
\21\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
In justifying its proposal, the Exchange stated that establishing
an ORF in the amount of $0.0015 is reasonable because it ``will serve
to balance the Exchange's regulatory revenue against the anticipated
regulatory costs'' and ``is lower than the amount of ORF assessed on
other exchanges.'' \22\ According to the Exchange, its ORF is designed
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. . . .'' \23\
---------------------------------------------------------------------------
\22\ See Notice, supra note 3, at 68695-96. Several other
exchanges have a lower ORF rate than that proposed by the Exchange.
See, e.g., Nasdaq ISE, available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207
($0.0013); Nasdaq GEMX, available at Rules [bond] Nasdaq GEMX
($0.0012); CboeEDGX, available at Cboe EDGX Options Exchange Fee
Schedule ($0.0001); and MIAX Emerald, available at https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_10122023_3.pdf ($0.0006).
\23\ See Notice, supra note 3, at 68696.
---------------------------------------------------------------------------
The Exchange also asserted that the ORF is equitably allocated and
not unfairly discriminatory because ``it is charged to all Members on
all their transactions that clear as customer at the OCC'' and is
``directly based on the amount of customer options business they
conduct.'' \24\ In addition, the Exchange stated that ``[r]egulating
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.'' \25\ Further, the Exchange stated that it has
``broad regulatory responsibilities with respect to a Members'
activities, irrespective of where their transactions take place'' and
notes that it ``will not be able to effectively surveil [its Members']
conduct without looking at and evaluating activity across all options
markets.'' \26\ Consequently, the Exchange imposes the ORF on all
customer-range transactions cleared by a Member, even if the
transactions do not take place on the Exchange and regardless of
whether the transaction was executed by a member.\27\
---------------------------------------------------------------------------
\24\ Id.
\25\ Id.
\26\ Id. at 68693 and 68696.
\27\ Id. The Exchange also states that its proposed collection
method which is similar to that utilized by other options exchanges
``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.'' Id. at 68696.
---------------------------------------------------------------------------
Furthermore, the Exchange notes 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.'' \28\
---------------------------------------------------------------------------
\28\ Id. at 68697.
---------------------------------------------------------------------------
In temporarily suspending the Exchange's proposed rule change, the
Commission intends to further consider whether the proposal to
establish an ORF in the amount of $0.0015 is consistent with the
statutory requirements applicable to a national securities exchange
under the Act. In particular, the Commission will consider whether the
proposed rule change satisfies the standards under the Act and the
rules thereunder requiring, among other things, that an exchange's
rules provide for the equitable allocation of reasonable fees among
members, issuers, and other persons using its facilities; not permit
unfair discrimination between customers, issuers, brokers or dealers;
and do not
[[Page 83592]]
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.\29\
---------------------------------------------------------------------------
\29\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------
Therefore, the Commission finds that it is necessary or appropriate
in the public interest, for the protection of investors, and otherwise
in furtherance of the purposes of the Act, to temporarily suspend the
proposed rule change.\30\
---------------------------------------------------------------------------
\30\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change
In addition to temporarily suspending the proposal, the Commission
also hereby institutes proceedings pursuant to sections 19(b)(3)(C)
\31\ and 19(b)(2)(B) of the Act \32\ to determine whether the
Exchange's proposed rule change should be approved or disapproved.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, the Commission seeks and encourages interested persons to
provide additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\32\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to section 19(b)(2)(B) of the Act,\33\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding, or if the
exchange consents to the longer period. See id.
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed fee
is consistent with section 6(b)(4) of the Act, which requires that the
rules of a national securities exchange ``provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities'' \34\
(emphasis added);
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed fee
is consistent with section 6(b)(5) of the Act, which requires, among
other things, that the rules of a national securities exchange not be
``designed to permit unfair discrimination between customers, issuers,
brokers, or dealers'' \35\ (emphasis added); and
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed fee
is consistent with section 6(b)(8) of the Act, which requires that the
rules of a national securities exchange ``not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of [the Act].'' \36\
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
As noted above, the Exchange proposes to establish an ORF in the
amount of $0.0015 per contract side ``based on historical industry
volume, projected volumes on the Exchange, and projected Exchange
regulatory costs.'' \37\ The Exchange also states that ``revenue
generated from 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.\38\ However, those and other
statements in support of its proposed establishment of an ORF are
general in nature and lack sufficient detail and specificity.
---------------------------------------------------------------------------
\37\ See Notice, supra note 3, at 68692.
\38\ Id. at 68693.
---------------------------------------------------------------------------
For example, the Exchange does not elaborate on the ``material
portion'' of options regulatory expenses that it seeks to recover from
the ORF and why the threshold it selected (i.e., that ORF will ``not
exceed more than 75% of total annual regulatory costs'') correlates to
the degree of regulatory responsibility and expenses borne by the
Exchange as it relates to the regulation of customer options
transactions.\39\ Further, the Exchange has not provided any
quantifiable information to support its assertion that regulating
customer trading activity is ``much more labor-intensive'' and
therefore, more costly. The Exchange does not claim in its filing that
its regulation of customer activity will consume 75% of total
regulatory costs nor does it assert that customer activity will require
a level of effort that will occupy 75% of the regulatory department's
attention. Further, the Exchange does not sufficiently analyze how
funding 75% of its total regulatory costs (including direct and
indirect expenses) from ORF constitutes an equitable allocation of
reasonable fees among members, and it does not provide sufficient
detail to allow the Commission and commenters to consider those issues.
---------------------------------------------------------------------------
\39\ See Notice, supra note 3, at 68693.
---------------------------------------------------------------------------
Further, the Exchange has not provided specific or detailed
information regarding the anticipated regulatory cost associated with
regulating, monitoring, and surveilling on-exchange activity compared
to activity that takes place on other exchanges (which exchanges assess
their own ORF on those trades). In particular, the Exchange proposes to
collect ORF on executions that do not occur on the Exchange. The
proposed ORF rate is the same for on-exchange and off-exchange
activity, so the proposal will result in the Exchange at least
initially funding a very significant portion of its total regulatory
costs from a fee charged on contracts that execute away from the
Exchange. The Exchange does not provide a sufficiently detailed
analysis or present specific facts to show the level of regulatory
effort and regulatory costs it would expend on contracts that execute
on other exchanges. Without more information in the filing on the
Exchange's projected regulatory revenues, regulatory costs, and
regulatory activities to supervise and regulate members, specifically,
e.g., customer versus non-customer activity and on-exchange versus off-
exchange activity, the proposal lacks specific information that can
speak to whether the proposed ORF is reasonable, equitably allocated,
and not unfairly discriminatory, particularly given that the ORF is
assessed only on transactions that clear in the ``customer'' range and
regardless of the exchange on which the transaction occurs.
Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \40\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\41\ and any failure of an SRO to provide this information may
result in the Commission not having a sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the
Act and the applicable rules and regulations.\42\
---------------------------------------------------------------------------
\40\ 17 CFR 201.700(b)(3).
\41\ See id.
\42\ See id.
---------------------------------------------------------------------------
As explained above, the Exchange's statements in support of the
proposed rule change are general in nature and
[[Page 83593]]
lack detail and specificity. The Commission cannot unquestionably rely
on an exchange's statements and representations.\43\ Instead, the
Commission needs sufficient information to support independent findings
that a proposal is consistent with the requirements of the Act.\44\
Here, such an analysis includes, among other things, whether the
proposed ORF is an equitable allocation of reasonable dues, fees, and
other changes among the Exchange's members, as well as whether the
proposed ORF is equitable and not unfairly discriminatory.
---------------------------------------------------------------------------
\43\ See Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 442, 447
(August 8, 2017).
\44\ See id.
---------------------------------------------------------------------------
The Commission needs additional information from the Exchange to
demonstrate how the proposal meets those and other applicable
requirements of the Act, to assess whether the Exchange has established
a sufficient nexus between the proposed ORF and the Exchange's
regulation of customer trading activity both on and off exchange. While
the Commission broadly solicits comment from all interested parties on
the proposal, the Commission believes that the Exchange alone has
access to much of the specific detail necessary to fully address these
questions and concerns because these matters involve qualitative and
quantitative information about the Exchange's operations. Specifically,
among other things, the Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal
contained in the Notice.\45\ In particular, the Commission seeks
comment on the following aspects of the proposal and asks commenters to
submit data where appropriate to support their views:
---------------------------------------------------------------------------
\45\ See Notice, supra note 3.
---------------------------------------------------------------------------
1. Information on the Exchange's Projected Regulatory Costs and
Revenues. The Exchange states that its proposed ORF rate is reasonable
based on historical industry volume, projected volumes on the Exchange,
and projected Exchange regulatory costs. The Exchange notes that its
regulatory costs would include direct regulatory expenses and certain
indirect expenses for work ``allocated in support of the regulatory
function.'' \46\ According to the Exchange, indirect regulatory
expenses (including, among other things, human resources, legal,
information technology, facilities and accounting, as well as certain
shared expenses necessary to operate the Exchange and carry out its
regulatory function) are anticipated to be approximately 24% of the
Exchange's total regulatory costs for 2023 and 2024 and direct
regulatory expenses are anticipated to be approximately 76% of the
Exchange's total regulatory costs for 2023 and 2024.\47\ Do commenters
believe the Exchange has provided adequate detail regarding these
metrics? If not, what additional information should be provided to
demonstrate how the proposal is consistent with the Act?
---------------------------------------------------------------------------
\46\ See Notice, supra note 3, at 68693.
\47\ Id.
---------------------------------------------------------------------------
2. Information on the Exchange's Imposition of ORF on Customer
Orders. The Exchange states that it will ensure that revenue generated
from ORF not exceed more than 75% of total annual regulatory costs.\48\
Do commenters believe that the Exchange has sufficiently analyzed and
justified its proposal to fund 75% of its total regulatory expenses
from a fee imposed only on options transactions clearing in the
customer-range, where those expenses include the regulation of
transactions that clear in the non-customer-range (e.g., broker-dealer
and market maker trades)? In addition, explaining that the proposed ORF
would be charged to ``all Members on all their transactions that clear
as customer at the OCC,'' the Exchange states that such methodology
``ensures fairness by assessing fees to those Members that are directly
based on the amount of customer options business they conduct.'' \49\
The Exchange further asserts that ``[r]egulating 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.''
\50\ According to the Exchange, ``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.'' \51\ Do commenters believe
that the Exchange has provided sufficiently detailed quantitative and
qualitative evidence in support of this aspect of its proposal?
Specifically, examples of information that would be helpful to
demonstrate how the assessment of ORF only on orders that clear in the
customer-range correlates to the level of effort and costs the Exchange
expends to regulate customer options transactions include: (a) the
percentage of volume expected to clear in the customer-range both on
and off the Exchange compared to the percentage of volume expected to
clear in a range other than customer both on and off the Exchange; (b)
the percentage of the Exchange's regulatory budget that would be
attributable to the regulation of orders that are expected to clear in
the customer-range compared to the percentage of the Exchange's
regulatory budget that would be attributable to orders that are
expected to clear in a range other than customer; (c) the anticipated
percentage of the Exchange's regulatory level of effort that would be
attributable to the regulation of orders that are expected to clear in
the customer-range compared to the anticipated percentage of the
Exchange's regulatory level effort that would be attributable to orders
that are expected to clear in a range other than customer; and (d) the
proportion of the Exchange's revenues, as reported in the most recent
annual financials it submitted on Form1, that would be represented by
expected ORF revenues if those revenues had been included in the most
recent annual financials.
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\48\ See id.
\49\ Id. at 68696.
\50\ Id.
\51\ Id.
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3. Information on the Exchange's Assessment of ORF on Away-Market
Activity. The Exchange states that it has ``broad regulatory
responsibilities with respect a Member's activities, irrespective of
where their transactions take place. . . .'' \52\ The Exchange
therefore believes that it is appropriate to impose the ORF even where
the transaction does not take place on the Exchange.\53\ Do commenters
believe that the Exchange has provided sufficiently detailed
quantitative and qualitative evidence in support of how the assessment
of ORF on away-market transactions correlates to the effort it will
expend on regulating away-market transactions compared to the level of
effort the Exchange will invest in regulating transactions on Exchange?
Specifically, examples of information that would be helpful to assess
the application of the ORF to executions that do not occur on the
Exchange include: (a) the projected percentage of the Exchange's
overall regulatory budget that is expected to be attributable to
regulating away-market transactions compared to the projected
percentage of the Exchange's overall regulatory budget that is expected
to be attributable to regulating on-Exchange transactions; (b) the
projected percentage of the Exchange's regulatory level of effort that
is expected to be attributable to the regulation of away-market
transactions compared to the projected percentage of
[[Page 83594]]
the Exchange's regulatory level of effort that is expected to be
attributable to the regulation of orders that execute on the Exchange;
(c) the anticipated percentage of ORF revenue that is expected to be
derived from away-market transactions compared to the anticipated
percentage of ORF revenue that is expected to be derived from
executions on the Exchange; and (d) more detail on the regulatory
activities the exchange expects to perform for trades that do not occur
on the Exchange.
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\52\ See id. at 68694.
\53\ See id.
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4. Information on the Exchange's Regulatory Program Concerning
Clearing Brokers. The Exchange states that ORF is collected on
``customer range'' options transactions cleared or ultimately cleared
by an Exchange member regardless of the exchange on which the
transaction occurs.\54\ The Exchange also will collect ORF from a non-
Member clearing broker where a member was the executing firm and a non-
Member was the ultimate clearing firm. Do commenters believe that the
Exchange has provided sufficiently detailed quantitative and
qualitative evidence in support of this aspect of its proposal?
Specifically, examples of information that would be helpful to provide
context for the collection of ORF from member and non-member clearing
brokers and determine whether a sufficient nexus exists between the ORF
and the Exchange's regulation of clearing activity, include: (a) the
percentage of the Exchange's regulatory expenses and level of
regulatory activity that is expected to pertain to clearance and
settlement activity and the percentage this is expected to account for
with respect to the Exchange's overall regulatory costs and regulatory
activity, and if that differs depending on whether the ultimate
clearing firm is an Exchange member or not and whether the contract
executes on the Exchange or not; (b) the number of ``ultimate clearing
firms'' that are Exchange members compared to the number of ``ultimate
clearing firms'' that are non-Members from which ORF is expected to be
collected on behalf of the Exchange; and (c) the percentage of ORF
revenues that is expected to be collected from Member clearing firms
compared to the percentage of ORF revenue that is expected to be
collected from non-Member clearing firms.
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\54\ See id. at 68692.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposed fees are consistent with the Act, and
specifically, with the requirements that exchange fees be reasonable,
equitably allocated, and not unfairly discriminatory.\55\
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\55\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by December 21, 2023.
Rebuttal comments should be submitted by January 4, 2024. Although
there do not appear to be any issues relevant to approval or
disapproval which would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\56\
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\56\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
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 December 21, 2023. Rebuttal comments should be
submitted by January 4, 2024.
VI. Conclusion
It is therefore ordered, pursuant to section 19(b)(3)(C) of the
Act,\57\ that file number SR-MEMX-2023-25, be and hereby is,
temporarily suspended. In addition, the Commission is instituting
proceedings to determine whether the proposed rule change should be
approved or disapproved.
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\57\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(57) and (58).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-26263 Filed 11-29-23; 8:45 am]
BILLING CODE 8011-01-P
