Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX Sapphire LLC To Establish an Options Regulatory Fee (“ORF”), 71496-71501 [2024-19641]
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Federal Register / Vol. 89, No. 170 / Tuesday, September 3, 2024 / Notices
the most significant aspects of such
statements.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100824; File No. SR–
SAPPHIRE–2024–25]
Self-Regulatory Organizations; MIAX
Sapphire, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change by MIAX Sapphire LLC To
Establish an Options Regulatory Fee
(‘‘ORF’’)
August 27, 2024.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on August 21, 2024, MIAX Sapphire,
LLC (‘‘MIAX Sapphire’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Sapphire Fee
Schedule (the ‘‘Fee Schedule’’) to
establish an Options Regulatory Fee
(‘‘ORF’’) that would automatically
sunset on October 31, 2024.
While changes to the Fee Schedule
pursuant to this proposal are effective
upon filing, the Exchange has
designated these changes to be operative
on September 1, 2024.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/miax-sapphire/rule-filings, at
the Exchange’s principal office, and at
the Commission’s Public Reference
Room.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to adopt
Section b), Options Regulatory Fee, to
Chapter 2 of the Fee Schedule. The
Exchange proposes to establish an ORF
in the amount of $0.0013 per contract
side. The amount of the proposed fee is
based on historical industry volume,
projected volumes on the Exchange,
projected Exchange regulatory costs,
and an assessment practice which is
identical to the assessment practices
currently utilized by the Exchange’s
affiliates, Miami International Securities
Exchange, LLC (‘‘MIAX Options’’) MIAX
PEARL, LLC (‘‘MIAX Pearl’’), and MIAX
Emerald, LLC (‘‘MIAX Emerald’’). The
Exchange’s proposed ORF should
balance the Exchange’s regulatory
revenue against the anticipated
regulatory costs. The Exchange
acknowledges that alternative ORF
models are being pursued, however a
consensus has not yet been reached
among the industry. Therefore the
Exchange proposes that it will start
collecting ORF beginning on September
1, 2024, and that the ORF will
automatically sunset on October 31,
2024.3 The Exchange believes this will
provide the Exchange additional time to
inform its approach to ORF, so that it
may compete on equal footing with each
of the other option exchanges that
charge similar regulatory fees. The
Exchange initially filed this proposal on
August 7, 2024 (SR–SAPPHIRE–2024–
14). The Exchange withdrew SR–
SAPPHIRE–2024–14 on August 21,
2024, and submitted this proposal.
The per-contract ORF will be assessed
by MIAX Sapphire to each MIAX
Sapphire Member 4 for all options
transactions cleared or ultimately
cleared by the Member which are
cleared by the Options Clearing
Corporation (‘‘OCC’’) in the ‘‘customer’’
range, regardless of the exchange on
which the transaction occurs. The ORF
will be collected by the OCC on behalf
of MIAX Sapphire from either: (1) a
Member that was the ultimate clearing
3 The Exchange proposes to adopt a note to its Fee
Schedule to communicate the start date and sunset
date.
4 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of MIAX Sapphire Rules for
purposes of trading on the Exchange as an
‘‘Electronic Exchange Member’’ or ‘‘Market Maker.’’
Members are deemed ‘‘members’’ under the
Exchange Act. See Exchange Rule 100.
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firm 5 for the transaction; or (2) a nonMember that was the ultimate clearing
firm where a Member was the executing
clearing firm 6 for the transaction. The
Exchange will use reports from the OCC
to determine the identity of the
executing clearing firm and ultimate
clearing firm.
To illustrate how the ORF will be
assessed and collected, the Exchange
provides the following set of examples.
If the transaction is executed on the
Exchange and the ORF is assessed, if
there is no change to the clearing
account of the original transaction, then
the ORF is collected from the Member
that is the executing clearing firm for
the transaction. (The Exchange notes
that, for purposes of the Fee Schedule,
when there is no change to the clearing
account of the original transaction, the
executing clearing firm is deemed to be
the ultimate clearing firm.) If there is a
change to the clearing account of the
original transaction (i.e., the executing
clearing firm ‘‘gives-up’’ or ‘‘CMTAs’’
the transaction to another clearing firm),
then the ORF is collected from the
clearing firm that ultimately clears the
transaction—the ultimate clearing firm.
The ultimate clearing firm may be either
a Member or non-Member of the
Exchange. If the transaction is executed
on an away exchange and the ORF is
assessed, then the ORF is collected from
the ultimate clearing firm for the
transaction. Again, the ultimate clearing
firm may be either a Member or nonMember of the Exchange. The Exchange
notes, however, that when the
transaction is executed on an away
exchange, the Exchange does not assess
the ORF when neither the executing
clearing firm nor the ultimate clearing
firm is a Member (even if a Member is
‘‘given-up’’ or ‘‘CMTAed’’ and then
such Member subsequently ‘‘gives-up’’
or ‘‘CMTAs’’ the transaction to another
non-Member via a CMTA reversal).
Finally, the Exchange will not assess the
ORF on outbound linkage trades,
whether executed at the Exchange or an
away exchange. ‘‘Linkage trades’’ are
tagged in the Exchange’s system, so the
5 The Exchange takes into account any Clearing
Member Trade Assignment (‘‘CMTA’’) transfers
when determining the ultimate clearing firm for a
transaction. CMTA 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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Exchange can readily tell them apart
from other trades. A customer order
routed to another exchange results in
two customer trades, one from the
originating exchange and one from the
recipient exchange. Charging ORF on
both trades could result in doublebilling of ORF for a single customer
order, thus the Exchange will not assess
ORF on outbound linkage trades in a
linkage scenario. This assessment
practice is identical to the assessment
practice currently utilized by the
Exchange’s affiliates, MIAX Options,
MIAX Pearl, and MIAX Emerald.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. The clearing firms may then
choose to pass through all, a portion, or
none of the cost of the ORF to its
customers, i.e., the entering firms.
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
7 See Securities Exchange Act Release Nos. 80875
(June 7, 2017), 82 FR 27096 (June 13, 2017) (SR–
PEARL–2017–26); 81063 (June 30, 2017), 82 FR
31668 (July 7, 2017) (SR–MIAX–2017–31); and
85251 (March 6, 2019) 84 FR 8931 (March 12, 2019)
(SR–EMERALD–2019–01).
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regardless of whether a Member enters
an order that executes or clears a
transaction executed on behalf of
another party. 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 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
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. 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
or equal to 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 on 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 costs not
already allocated to other fees imposed
by the Exchange. Indirect expenses are
estimated to be approximately 52% of
the total regulatory costs for 2024. Thus,
direct expenses are estimated to be
approximately 48% of the total
regulatory costs for 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
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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. The Exchange will
monitor MIAX Sapphire regulatory costs
and revenues at a minimum on a semiannual 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 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 customer 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 (including nonMembers) trading on the Exchange. The
Exchange cannot 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, 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
OCC, including for away market
activity. Among other reasons, doing so
better and more accurately captures
activity that occurs away from the
Exchange over which the Exchange has
a degree of regulatory responsibility. In
so doing, the Exchange believes that
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assessing ORF on Member clearing firms
equitably distributes the collection of
ORF in a fair and reasonable manner.
Also, the Exchange and the other
options exchanges are required to
populate a consolidated options audit
trail (‘‘COATS’’) 8 system in order to
surveil a Member’s activities across
markets.
In addition to its own surveillance
programs, the Exchange will work with
other SROs and exchanges on
intermarket surveillance related issues.
Through its participation in the
Intermarket Surveillance Group
(‘‘ISG’’),9 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.10
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 members’ activity, and their
fees will extend to include the activities
of their own members on the Exchange.
In fact, all registered options exchanges
currently impose ORF on their
members, and, similar to the Exchange,
the majority of the options exchanges,
including MIAX Sapphire’s affiliates,
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.11
8 COATS effectively enhances intermarket
options surveillance by enabling the options
exchanges to reconstruct the market promptly to
effectively surveil certain rules.
9 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.
10 See Section 6(h)(3)(I) of the Act.
11 See Securities Exchange Act Release Nos.
68711 (January 23, 2013), 78 FR 6155 (January 29,
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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 12 and the
ORF assessed by other options
exchanges including, but not limited to,
NYSE Amex LLC (‘‘NYSE AMEX’’),
NYSE Arca, Inc. (‘‘NYSE Arca’’), Cboe
Exchange, Inc. (‘‘Cboe’’), Cboe BZX
Exchange, Inc. (‘‘BZX’’), Cboe EDGX
Exchange, Inc. (‘‘EDGX’’), Nasdaq PHLX
LLC (‘‘Phlx’’), Nasdaq ISE, LLC (‘‘ISE’’),
Nasdaq GEMX, LLC (‘‘GEMX’’), MIAX
Options and BOX Options Exchange
LLC (‘‘BOX’’).13 While the Exchange
2013) (SR–MIAX–2013–01); 80035 (February 14,
2017), 82 FR 11272 (February 21, 2017 (SR–PEARL–
2017–09); 85251 (March 6, 2019), 84 FR 8931
(March 12, 2019) (SR–EMERALD–2019–01).
12 See Securities Exchange Act Release No. 47946
(May 30, 2003), 68 FR 34021 (June 6, 2003) (SR–
NASD–2002–148).
13 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 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 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 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 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 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 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 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 MIAX Options 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 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 EDGX formerly known
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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.
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
Regulatory Fee of NYSE American,
NYSE Arca, MIAX Options, MIAX
PEARL, MIAX Emerald, Cboe, Cboe
EDGX Options, and C2.14 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
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
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 adopting an ORF applicable to transactions
across all options exchanges).
14 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) (SRCBOE– 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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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. The Exchange
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
currently operating options exchanges.
The Exchange recognizes that an
alternative model is being pursued
among industry participants but that a
consensus has not yet been reached.
Therefore, the Exchange proposes to
establish an ORF in the amount of
$0.0013 per contract side to be operative
on September 1, 2024, until October 31,
2024, at which time its ORF will
automatically sunset. The Exchange
believes that 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 and avoid the unfair
competitive disadvantage it would be
placed at it if it were not allowed to
collect ORF during the time period
needed to assess and collect data it does
not have as a new options exchange.
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 MIAX
Sapphire, and as such, it follows that
the Exchange that is primarily
responsible for monitoring those
transactions should also be able to
charge ORF for activity occurring on its
own market, as well as transactions it
surveils on away markets.
The Exchange notes that if, during the
proposed ORF collection period of
September 1, 2024, until the sunset date
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of October 31, 2024, a viable alternative
ORF methodology presents itself, the
Exchange would endeavor to implement
said alternative prior to the proposed
sunset date of October 31, 2024.
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 MIAX
Sapphire, 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.
The Exchange will notify current and
future Members via a Regulatory
Circular of the proposed ORF prior to
the operative date of September 1, 2024.
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.15
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 16
in general, and furthers the objectives of
Section 6(b)(4) of the Act 17 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 18 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.
15 See MIAX Sapphire Options Alert, ‘‘MIAX
Sapphire Options Exchange—Options Regulatory
Fee,’’ July 23, 2024, available online at https://
www.miaxglobal.com/alert/2024/07/23/miaxsapphire-options-exchange-options-regulatory-fee.
See also, MIAX Sapphire Regulatory Circular 2024–
03, ‘‘MIAX Sapphire Options—Options Regulatory
Fee,’’ August 2, 2024, available online at https://
www.miaxglobal.com/sites/default/files/circularfiles/MIAX_Sapphire_Options_RC_2024_03.pdf.
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(4).
18 15 U.S.C. 78f(b)(5).
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71499
The Exchange believes that
establishing an ORF in the amount of
$0.0013 is reasonable because the
Exchange’s collection of ORF needs to
be balanced against the amount of
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
amount of ORF assessed on other
exchanges.19
The Exchange also believes the
proposed fee change is equitable and
not unfairly discriminatory in that it is
charged to all Members on all their
transactions that clear in the customer
range at the OCC, with an exception.20
The Exchange believes the ORF ensures
fairness by assessing higher fees to those
members that require more Exchange
regulatory services based on the amount
of customer options business they
conduct. Regulating customer trading
activity is much more labor intensive
and requires greater expenditure of
human and technical resources than
regulating non-customer trading
activity, which tends to be more
automated and less labor-intensive. For
example, there are costs associated with
main office and branch office
examinations (e.g., staff expenses), as
well as investigations into customer
complaints and the terminations of
registered persons. As a result, the costs
associated with administering the
customer component of the Exchange’s
overall regulatory program are
materially higher than the costs
associated with administering the noncustomer component (e.g., member
proprietary transactions) of its
regulatory program. Moreover, the
Exchange notes that it has broad
19 See, e.g., NYSE Arca Options Fees and Charges,
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 $0.0017
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; and the MEMX Fee Schedule which
provides an ORF rate of $0.0015.
20 When a transaction is executed on an away
exchange, the Exchange does not assess the ORF
when neither the executing clearing firm nor the
ultimate clearing firm is a Member (even if a
Member is ‘‘given-up’’ or ‘‘CMTAed’’ and then such
Member subsequently ‘‘gives-up’’ or ‘‘CMTAs’’ the
transaction to another non-Member via a CMTA
reversal).
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Federal Register / Vol. 89, No. 170 / Tuesday, September 3, 2024 / Notices
tkelley on LAP7H3WLY3PROD with NOTICES2
regulatory responsibilities with respect
to activities of its Members, irrespective
of where their transactions take place.
Many of the Exchange’s surveillance
programs for customer trading activity
may require the Exchange to look at
activity across all markets, such as
reviews related to position limit
violations and manipulation. Indeed,
the Exchange cannot effectively review
for such conduct without looking at and
evaluating activity regardless of where it
transpires. In addition to its own
surveillance programs, the Exchange
also works with other SROs and
exchanges on intermarket surveillance
related issues. Through its participation
in the Intermarket Surveillance Group
(‘‘ISG’’) 21 the Exchange shares
information and coordinates inquiries
and investigations with other exchanges
designed to address potential
intermarket manipulation and trading
abuses. Accordingly, there is a strong
nexus between the ORF and the
Exchange’s regulatory activities with
respect to customer trading activity of
its Members.
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 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
21 ISG
is an industry organization formed in 1983
to coordinate intermarket surveillance among the
SROs by cooperatively sharing regulatory
information pursuant to a written agreement
between the parties. The goal of the ISG’s
information sharing is to coordinate regulatory
efforts to address potential intermarket trading
abuses and manipulations.
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Members activity, as well as the fact that
this collection method was originally
instituted for the benefit of clearing
firms that
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. Allowing the
Exchange to collect an ORF beginning
on September 1, 2024 until the sunset
date of October 31, 2024, is reasonable
as it allows the Exchange to recoup its
regulatory expenses in the exact manner
as other options exchanges. MEMX, a
competing options exchange, which
began operations on September 27,
2023,22 established an ORF amount of
$0.0015.23 MEMX then adopted a
proposal where its ORF would
automatically sunset eight months later
on May 31, 2024.24 MEMX then
extended the sunset period another five
months until October 31, 2024.25
B. Self-Regulatory Organization’s
Statement on Burden on Competition
MIAX Sapphire 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
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. MIAX
Sapphire’s proposed ORF, as described
herein, is lower than, or comparable to,
fees charged by other options exchanges
for the same or similar services.
22 See MEMX Trader Alert 23–42: MEMX Options
Exchange Launch Schedule, available at: https://
info.memxtrading.com/trader-alert-23-42-memxoptions-exchange-schedule-update/.
23 See Securities Exchange Act Release No. 98585
(September 28, 2023), 88 FR 68692 (October 4,
2023) (SR–MEMX–2023–25).
24 See Securities Exchange Act Release No. 99259
(January 2, 2024), 89 FR 99259 (January 8, 2024)
(SR–MEMX–2023–38).
25 See Securities Exchange Act Release No.
100253 (May 31, 2024), 89 FR 48473 (June 6, 2024)
(SR–MEMX–2024–23).
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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. Also, as noted above,
all registered options exchanges
currently impose the ORF on their
members, and such ORF fees imposed
by other options exchanges currently do
and will continue to extend to
executions occurring on the Exchange.
The Exchange believes that it is likely
that a viable ORF alternative may be
presented prior to the Exchange’s sunset
period, and the Exchange is not
precluded from adopting said
alternative prior to the sunset date. 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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
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
119b–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 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.
26 15
27 17
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.119b–4(f)(2).
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Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Secretary, and at the Commission’s
Public Reference Room.
Electronic Comments
[Release No. 34–100830; File No. SR–C2–
2024–013]
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.
• 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–
SAPPHIRE–2024–25 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–SAPPHIRE–2024–25. 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–SAPPHIRE–2024–25 and should be
submitted on or before September 24,
2024.
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71501
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–19641 Filed 8–30–24; 8:45 am]
BILLING CODE 8011–01–P
28 17
CFR 200.30–3(a)(12).
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Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Establish Fees for
Industry Members Related to
Reasonably Budgeted Costs of the
National Market System Plan
Governing the Consolidated Audit Trail
for the Period From July 16, 2024
Through December 31, 2024
August 27, 2024.
Pursuant to Section 19(b)(1) under the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
15, 2024, Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2 Options’’) proposes
to adopt a fee schedule entitled
‘‘Consolidated Audit Trail Funding
Fees’’ 3 to establish fees for Industry
Members 4 related to reasonably
budgeted CAT costs of the National
Market System Plan Governing the
Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’) for the period
from July 16, 2024 through December
31, 2024. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/ctwo/),
at the Exchange’s Office of the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Exchange and each of its affiliated
exchanges (Cboe BYX Exchange, Inc., Cboe BZX
Exchange, Inc., Cboe Exchange, Inc., Cboe EDGA
Exchange, Inc., and Cboe EDGX Exchange, Inc.) are
filing to adopt this fee schedule.
4 An ‘‘Industry Member’’ is defined as ‘‘a member
of a national securities exchange or a member of a
national securities association.’’ See Exchange Rule
7.20(u); see also Section 1.1 of the CAT NMS Plan.
Unless otherwise specified, capitalized terms used
in this rule filing are defined as set forth in the CAT
NMS Plan and/or the CAT Compliance Rule. See
Chapter 7, Section B of the Exchange’s Rulebook
(which incorporates by reference Cboe Options, Inc.
Chapter 7, Section B).
2 17
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On July 11, 2012, the Commission
adopted Rule 613 of Regulation NMS,
which required the self-regulatory
organizations (‘‘SROs’’) to submit a
national market system (‘‘NMS’’) plan to
create, implement and maintain a
consolidated audit trail that would
capture customer and order event
information for orders in NMS securities
across all markets, from the time of
order inception through routing,
cancellation, modification or
execution.5 On November 15, 2016, the
Commission approved the CAT NMS
Plan.6 Under the CAT NMS Plan, the
Operating Committee has the discretion
to establish funding for CAT LLC to
operate the CAT, including establishing
fees for Industry Members to be assessed
by CAT LLC that would be implemented
on behalf of CAT LLC by the
Participants.7 The Operating Committee
adopted a revised funding model to
fund the CAT (‘‘CAT Funding Model’’).
On September 6, 2023, the Commission
approved the CAT Funding Model after
concluding that the model was
reasonable and that it satisfied the
requirements of Section 11A of the
Exchange Act and Rule 608 thereunder.8
The CAT Funding Model provides a
framework for the recovery of the costs
to create, develop and maintain the
CAT, including providing a method for
allocating costs to fund the CAT among
5 Securities Exchange Act Rel. No. 67457 (July 18,
2012), 77 FR 45722 (Aug. 1, 2012).
6 Securities Exchange Act Rel. No. 79318 (Nov.
15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘CAT NMS
Plan Approval Order’’).
7 Section 11.1(b) of the CAT NMS Plan.
8 Securities Exchange Act Rel. No. 98290 (Sept. 6,
2023), 88 FR 62628 (Sept. 12, 2023) (‘‘CAT Funding
Model Approval Order’’).
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]]>Agencies
[Federal Register Volume 89, Number 170 (Tuesday, September 3, 2024)]
[Notices]
[Pages 71496-71501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19641]
[[Page 71496]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100824; File No. SR-SAPPHIRE-2024-25]
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX
Sapphire LLC To Establish an Options Regulatory Fee (``ORF'')
August 27, 2024.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on August 21, 2024, MIAX Sapphire, LLC (``MIAX
Sapphire'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a 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 a proposal to amend the MIAX Sapphire Fee
Schedule (the ``Fee Schedule'') to establish an Options Regulatory Fee
(``ORF'') that would automatically sunset on October 31, 2024.
While changes to the Fee Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on September 1, 2024.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings, at the Exchange's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt Section b), Options Regulatory Fee,
to Chapter 2 of the Fee Schedule. The Exchange proposes to establish an
ORF in the amount of $0.0013 per contract side. The amount of the
proposed fee is based on historical industry volume, projected volumes
on the Exchange, projected Exchange regulatory costs, and an assessment
practice which is identical to the assessment practices currently
utilized by the Exchange's affiliates, Miami International Securities
Exchange, LLC (``MIAX Options'') MIAX PEARL, LLC (``MIAX Pearl''), and
MIAX Emerald, LLC (``MIAX Emerald''). The Exchange's proposed ORF
should balance the Exchange's regulatory revenue against the
anticipated regulatory costs. The Exchange acknowledges that
alternative ORF models are being pursued, however a consensus has not
yet been reached among the industry. Therefore the Exchange proposes
that it will start collecting ORF beginning on September 1, 2024, and
that the ORF will automatically sunset on October 31, 2024.\3\ The
Exchange believes this will provide the Exchange additional time to
inform its approach to ORF, so that it may compete on equal footing
with each of the other option exchanges that charge similar regulatory
fees. The Exchange initially filed this proposal on August 7, 2024 (SR-
SAPPHIRE-2024-14). The Exchange withdrew SR-SAPPHIRE-2024-14 on August
21, 2024, and submitted this proposal.
---------------------------------------------------------------------------
\3\ The Exchange proposes to adopt a note to its Fee Schedule to
communicate the start date and sunset date.
---------------------------------------------------------------------------
The per-contract ORF will be assessed by MIAX Sapphire to each MIAX
Sapphire Member \4\ for all options transactions cleared or ultimately
cleared by the Member which are cleared by the Options Clearing
Corporation (``OCC'') in the ``customer'' range, regardless of the
exchange on which the transaction occurs. The ORF will be collected by
the OCC on behalf of MIAX Sapphire 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. The Exchange will use reports
from the OCC to determine the identity of the executing clearing firm
and ultimate clearing firm.
---------------------------------------------------------------------------
\4\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of MIAX
Sapphire Rules for purposes of trading on the Exchange as an
``Electronic Exchange Member'' or ``Market Maker.'' Members are
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
\5\ The Exchange takes into account any Clearing Member Trade
Assignment (``CMTA'') transfers when determining the ultimate
clearing firm for a transaction. CMTA 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. If the transaction is
executed on the Exchange and the ORF is assessed, if there is no change
to the clearing account of the original transaction, then the ORF is
collected from the Member that is the executing clearing firm for the
transaction. (The Exchange notes that, for purposes of the Fee
Schedule, when there is no change to the clearing account of the
original transaction, the executing clearing firm is deemed to be the
ultimate clearing firm.) If there is a change to the clearing account
of the original transaction (i.e., the executing clearing firm ``gives-
up'' or ``CMTAs'' the transaction to another clearing firm), then the
ORF is collected from the clearing firm that ultimately clears the
transaction--the ultimate clearing firm. The ultimate clearing firm may
be either a Member or non-Member of the Exchange. If the transaction is
executed on an away exchange and the ORF is assessed, then the ORF is
collected from the ultimate clearing firm for the transaction. Again,
the ultimate clearing firm may be either a Member or non-Member of the
Exchange. The Exchange notes, however, that when the transaction is
executed on an away exchange, the Exchange does not assess the ORF when
neither the executing clearing firm nor the ultimate clearing firm is a
Member (even if a Member is ``given-up'' or ``CMTAed'' and then such
Member subsequently ``gives-up'' or ``CMTAs'' the transaction to
another non-Member via a CMTA reversal). Finally, the Exchange will not
assess the ORF on outbound linkage trades, whether executed at the
Exchange or an away exchange. ``Linkage trades'' are tagged in the
Exchange's system, so the
[[Page 71497]]
Exchange can readily tell them apart from other trades. A customer
order routed to another exchange results in two customer trades, one
from the originating exchange and one from the recipient exchange.
Charging ORF on both trades could result in double-billing of ORF for a
single customer order, thus the Exchange will not assess ORF on
outbound linkage trades in a linkage scenario. This assessment practice
is identical to the assessment practice currently utilized by the
Exchange's affiliates, MIAX Options, MIAX Pearl, and MIAX Emerald.\7\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release Nos. 80875 (June 7,
2017), 82 FR 27096 (June 13, 2017) (SR-PEARL-2017-26); 81063 (June
30, 2017), 82 FR 31668 (July 7, 2017) (SR-MIAX-2017-31); and 85251
(March 6, 2019) 84 FR 8931 (March 12, 2019) (SR-EMERALD-2019-01).
---------------------------------------------------------------------------
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. The clearing firms may then choose to pass through all, a
portion, or none of the cost of the ORF to its customers, i.e., the
entering firms.
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
behalf of another party. 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 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
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. 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 or equal to
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 on 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 costs not
already allocated to other fees imposed by the Exchange. Indirect
expenses are estimated to be approximately 52% of the total regulatory
costs for 2024. Thus, direct expenses are estimated to be approximately
48% of the total regulatory costs for 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. The
Exchange will monitor MIAX Sapphire 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 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 customer 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
(including non-Members) trading on the Exchange. The Exchange cannot
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, 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 OCC, including for away market activity. Among other
reasons, doing so better and more accurately captures activity that
occurs away from the Exchange over which the Exchange has a degree of
regulatory responsibility. In so doing, the Exchange believes that
[[Page 71498]]
assessing ORF on Member clearing firms equitably distributes the
collection of ORF in a fair and reasonable manner. Also, the Exchange
and the other options exchanges are required to populate a consolidated
options audit trail (``COATS'') \8\ system in order to surveil a
Member's activities across markets.
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\8\ COATS effectively enhances intermarket options surveillance
by enabling the options exchanges to reconstruct the market promptly
to effectively surveil certain rules.
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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. Through its participation in the Intermarket Surveillance Group
(``ISG''),\9\ 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.\10\
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\9\ 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.
\10\ 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
members' activity, and their fees will extend to include the activities
of their own members on the Exchange. In fact, all registered options
exchanges currently impose ORF on their members, and, similar to the
Exchange, the majority of the options exchanges, including MIAX
Sapphire's affiliates, 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.\11\
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\11\ See Securities Exchange Act Release Nos. 68711 (January 23,
2013), 78 FR 6155 (January 29, 2013) (SR-MIAX-2013-01); 80035
(February 14, 2017), 82 FR 11272 (February 21, 2017 (SR-PEARL-2017-
09); 85251 (March 6, 2019), 84 FR 8931 (March 12, 2019) (SR-EMERALD-
2019-01).
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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
\12\ and the ORF assessed by other options exchanges including, but not
limited to, NYSE Amex LLC (``NYSE AMEX''), NYSE Arca, Inc. (``NYSE
Arca''), Cboe Exchange, Inc. (``Cboe''), Cboe BZX Exchange, Inc.
(``BZX''), Cboe EDGX Exchange, Inc. (``EDGX''), Nasdaq PHLX LLC
(``Phlx''), Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX''),
MIAX Options and BOX Options Exchange LLC (``BOX'').\13\ 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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\12\ See Securities Exchange Act Release No. 47946 (May 30,
2003), 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148).
\13\ 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 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 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 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 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 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 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 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 MIAX Options 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 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 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 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 adopting an ORF applicable
to transactions across all options exchanges).
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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
Regulatory Fee of NYSE American, NYSE Arca, MIAX Options, MIAX PEARL,
MIAX Emerald, Cboe, Cboe EDGX Options, and C2.\14\ 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
[[Page 71499]]
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. The Exchange 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 currently operating options exchanges.
---------------------------------------------------------------------------
\14\ 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) (SRCBOE- 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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The Exchange recognizes that an alternative model is being pursued
among industry participants but that a consensus has not yet been
reached. Therefore, the Exchange proposes to establish an ORF in the
amount of $0.0013 per contract side to be operative on September 1,
2024, until October 31, 2024, at which time its ORF will automatically
sunset. The Exchange believes that 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 and avoid the unfair competitive
disadvantage it would be placed at it if it were not allowed to collect
ORF during the time period needed to assess and collect data it does
not have as a new options exchange. 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 MIAX Sapphire, and as such, it follows that
the Exchange that is primarily responsible for monitoring those
transactions should also be able to charge ORF for activity occurring
on its own market, as well as transactions it surveils on away markets.
The Exchange notes that if, during the proposed ORF collection
period of September 1, 2024, until the sunset date of October 31, 2024,
a viable alternative ORF methodology presents itself, the Exchange
would endeavor to implement said alternative prior to the proposed
sunset date of October 31, 2024.
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 MIAX Sapphire, 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.
The Exchange will notify current and future Members via a
Regulatory Circular of the proposed ORF prior to the operative date of
September 1, 2024. 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.\15\
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\15\ See MIAX Sapphire Options Alert, ``MIAX Sapphire Options
Exchange--Options Regulatory Fee,'' July 23, 2024, available online
at https://www.miaxglobal.com/alert/2024/07/23/miax-sapphire-options-exchange-options-regulatory-fee. See also, MIAX Sapphire
Regulatory Circular 2024-03, ``MIAX Sapphire Options--Options
Regulatory Fee,'' August 2, 2024, available online at https://www.miaxglobal.com/sites/default/files/circular-files/MIAX_Sapphire_Options_RC_2024_03.pdf.
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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 \16\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \17\ 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 \18\ 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.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4).
\18\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that establishing an ORF in the amount of
$0.0013 is reasonable because the Exchange's collection of ORF needs to
be balanced against the amount of 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 amount of ORF assessed on other exchanges.\19\
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\19\ See, e.g., NYSE Arca Options Fees and Charges, 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 $0.0017 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; and the MEMX Fee Schedule which provides an
ORF rate of $0.0015.
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The Exchange also believes the proposed fee change is equitable and
not unfairly discriminatory in that it is charged to all Members on all
their transactions that clear in the customer range at the OCC, with an
exception.\20\ The Exchange believes the ORF ensures fairness by
assessing higher fees to those members that require more Exchange
regulatory services based on the amount of customer options business
they conduct. Regulating customer trading activity is much more labor
intensive and requires greater expenditure of human and technical
resources than regulating non-customer trading activity, which tends to
be more automated and less labor-intensive. For example, there are
costs associated with main office and branch office examinations (e.g.,
staff expenses), as well as investigations into customer complaints and
the terminations of registered persons. As a result, the costs
associated with administering the customer component of the Exchange's
overall regulatory program are materially higher than the costs
associated with administering the non-customer component (e.g., member
proprietary transactions) of its regulatory program. Moreover, the
Exchange notes that it has broad
[[Page 71500]]
regulatory responsibilities with respect to activities of its Members,
irrespective of where their transactions take place. Many of the
Exchange's surveillance programs for customer trading activity may
require the Exchange to look at activity across all markets, such as
reviews related to position limit violations and manipulation. Indeed,
the Exchange cannot effectively review for such conduct without looking
at and evaluating activity regardless of where it transpires. In
addition to its own surveillance programs, the Exchange also works with
other SROs and exchanges on intermarket surveillance related issues.
Through its participation in the Intermarket Surveillance Group
(``ISG'') \21\ the Exchange shares information and coordinates
inquiries and investigations with other exchanges designed to address
potential intermarket manipulation and trading abuses. Accordingly,
there is a strong nexus between the ORF and the Exchange's regulatory
activities with respect to customer trading activity of its Members.
---------------------------------------------------------------------------
\20\ When a transaction is executed on an away exchange, the
Exchange does not assess the ORF when neither the executing clearing
firm nor the ultimate clearing firm is a Member (even if a Member is
``given-up'' or ``CMTAed'' and then such Member subsequently
``gives-up'' or ``CMTAs'' the transaction to another non-Member via
a CMTA reversal).
\21\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by cooperatively
sharing regulatory information pursuant to a written agreement
between the parties. The goal of the ISG's information sharing is to
coordinate regulatory efforts to address potential intermarket
trading abuses and manipulations.
---------------------------------------------------------------------------
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 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
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. Allowing the
Exchange to collect an ORF beginning on September 1, 2024 until the
sunset date of October 31, 2024, is reasonable as it allows the
Exchange to recoup its regulatory expenses in the exact manner as other
options exchanges. MEMX, a competing options exchange, which began
operations on September 27, 2023,\22\ established an ORF amount of
$0.0015.\23\ MEMX then adopted a proposal where its ORF would
automatically sunset eight months later on May 31, 2024.\24\ MEMX then
extended the sunset period another five months until October 31,
2024.\25\
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\22\ See MEMX Trader Alert 23-42: MEMX Options Exchange Launch
Schedule, available at: https://info.memxtrading.com/trader-alert-23-42-memx-options-exchange-schedule-update/.
\23\ See Securities Exchange Act Release No. 98585 (September
28, 2023), 88 FR 68692 (October 4, 2023) (SR-MEMX-2023-25).
\24\ See Securities Exchange Act Release No. 99259 (January 2,
2024), 89 FR 99259 (January 8, 2024) (SR-MEMX-2023-38).
\25\ See Securities Exchange Act Release No. 100253 (May 31,
2024), 89 FR 48473 (June 6, 2024) (SR-MEMX-2024-23).
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B. Self-Regulatory Organization's Statement on Burden on Competition
MIAX Sapphire 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 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. MIAX Sapphire's proposed ORF, as
described herein, is lower than, or comparable to, fees charged by
other options exchanges for the same or similar services.
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. Also, as noted above, all registered options
exchanges currently impose the ORF on their members, and such ORF fees
imposed by other options exchanges currently do and will continue to
extend to executions occurring on the Exchange. The Exchange believes
that it is likely that a viable ORF alternative may be presented prior
to the Exchange's sunset period, and the Exchange is not precluded from
adopting said alternative prior to the sunset date. 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
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 119b-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 should be approved or disapproved.
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\26\ 15 U.S.C. 78s(b)(3)(A)(ii).
\27\ 17 CFR 240.119b-4(f)(2).
---------------------------------------------------------------------------
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.
[[Page 71501]]
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-SAPPHIRE-2024-25 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-SAPPHIRE-2024-25. 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-SAPPHIRE-2024-25 and should
be submitted on or before September 24, 2024.
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. 2024-19641 Filed 8-30-24; 8:45 am]
BILLING CODE 8011-01-P
