Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule to Extend the Sunset Provision Related to the Options Regulatory Fee (ORF), 90791-90794 [2024-26754]
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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101588; File No. SR–
MEMX–2024–42]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend the Exchange’s Fee
Schedule to Extend the Sunset
Provision Related to the Options
Regulatory Fee (ORF)
November 12, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
31, 2024, MEMX LLC (‘‘MEMX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule change to
amend the Exchange’s fee schedule
applicable to Members 3 and nonMembers of the Exchange (the ‘‘Fee
Schedule’’) pursuant to Exchange Rules
15.1(a) and (c) to extend the current
sunset date of October 31, 2024
applicable to the Options Regulatory
Fee (‘‘ORF’’) to May 31, 2025. The
Exchange proposes to implement the
changes to the Fee Schedule pursuant to
this proposal immediately. The text of
the proposed rule change is provided in
Exhibit 5.
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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
the most significant aspects of such
statements.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Exchange Rule 1.5(p).
2 17
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1. Purpose
The Exchange proposes to amend its
Options Fee Schedule related to the
ORF to extend the current sunset date
of October 31, 2024 to May 31, 2025,
and thus continue charging the
previously established ORF in the
amount of $0.0015 per contract side
through May 31, 2025. As discussed
herein, the ORF sunset date was
initially proposed to provide time for
the Exchange to discuss alternative ORF
models with its Members. However,
those discussions have made clear that
there is there is [sic] not yet consensus
among market participants on a path
forward that would address industry
concerns in a manner that would effect
change broadly across all U.S. options
exchanges. In addition, one of the
Exchange’s competitors has recently
proposed a new model with respect to
ORF that the Exchange is still reviewing
and which has yet to receive public
feedback from the industry.4 Thus, the
Exchange proposes to extend the
automatic sunset date of October 31,
2024 until May 31, 2025, in order to
provide it additional time to inform its
approach to the ORF after the sunset
date while continuing to fund a portion
of its regulatory program via ORF so that
it may operate on equal footing with
each of the seventeen (17) other options
exchanges that charge similar regulatory
fees in amounts that far exceed the
relatively modest amounts collected by
the Exchange.
As background, MEMX previously
filed a proposal to establish an ORF in
the amount of $0.0015 per contract side
that would automatically sunset on
September 30, 2024 (the ‘‘Initial ORF
Filing’’).5 The Initial ORF Filing was
published for comment in the Federal
Register on October 4, 2023.6 The
Commission received no comments on
the Initial ORF Filing before November
24, 2023. On that date, the Commission
issued a Suspension of and Order
Instituting Proceedings to Determine
4 Proposals have been filed for each of the six
options markets operated by Nasdaq OMX and
affiliates (collectively, the ‘‘Nasdaq Proposals’’); see,
e.g., SR–Nasdaq–2024–58, which was filed by the
Nasdaq Stock Market LLC on October 23, 2024,
available at: https://listingcenter.nasdaq.com/
rulebook/NASDAQ/rulefilings; and SR–Phlx–2024–
50, which was filed by Nasdaq PHLX LLC on
October 23, 2024, available at: https://
listingcenter.nasdaq.com/rulebook/phlx/rulefilings.
5 See Securities Exchange Act Release No. 98585
(September 28, 2023), 88 FR 68692 (October 4,
2023) (SR–MEMX–2023–25).
6 See supra note 5.
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90791
whether to Approve or Disapprove a
Proposed Rule Change to Amend its Fee
Schedule to Establish an Options
Regulatory Fee (the ‘‘OIP’’) and
requested public comment and
additional information on various
aspects of the Initial ORF Filing.7 To
date, the Commission has received no
comment letters in response to the OIP.
The Exchange withdrew the Initial ORF
Filing on December 1, 2023 and
submitted a new proposal for immediate
effectiveness (‘‘Second ORF Filing’’).8
The Second Filing and Subsequent
Filings proposed the same fee as in the
Initial ORF Filing, but with a modified
sunset date of May 31, 2024, which was
four months prior to the proposed
sunset date in the Initial ORF Filing. On
May 1, 2024, the Exchange proposed to
remove the automatic sunset date of
May 31, 2024 altogether,9 however, the
Exchange withdrew that filing and
replaced it with a new filing that
proposed a new sunset date of October
31, 2024 in order to provide more time
to attempt to reach a consensus on ORF
moving forward, while also operating on
a level playing field with incumbent
options exchanges that are allowed to
recoup a portion of their regulatory
costs via the ORF.10 In order to make
certain clarifying changes, on May 23,
2024, the Exchange withdrew that
proposal and replaced it with SR–
MEMX–2024–22. Lastly, in order to
correct an inadvertent error, on May 28,
2024, the Exchange withdrew SR–
MEMX–2024–22 and replaced it with
7 See Securities Exchange Act Release No. 99017
(November 24, 2023), 88 FR 83590 (November 30,
2023) (SR–MEMX–2023–25). Additionally, on
November 24, 2023, solely for the purposes of
consistent billing for the entire month of November
2023, the Exchange filed SR–MEMX–2023–31 with
the Commission, which proposed to keep the Initial
ORF rate of $0.0015 per contract side that had been
charged since September 27th in place for
November 24 through November 30, 2023. See
Securities Exchange Act Release No. 99112
(December 7, 2023), 88 FR 86417 (SR–MEMX–
2023–31).
8 See SR–MEMX–2023–33. In order to make
certain clarifying changes, the Exchange withdrew
the Second ORF Filing on December 13, 2023, and
submitted a third proposal for immediate
effectiveness (‘‘Third ORF Filing’’). See SR–MEMX–
2023–34. Again, in order to make certain clarifying
changes, the Exchange withdrew the Third ORF
Filing on December 19, 2023, and submitted a
fourth proposal for immediate effectiveness
(‘‘Fourth ORF Filing’’). See SR–MEMX–2023–36.
On December 20, 2023, in order to correct an
inadvertent administrative error, the Exchange
withdrew the Fourth ORF Filing and submitted a
fifth proposal for immediate effectiveness (‘‘Fifth
ORF Filing’’ and together with the Third ORF Filing
and Fourth ORF Filing, the ‘‘Subsequent Filings’’).
See Securities Exchange Act Release No. 99259
(January 2, 2024), 89 FR 965 (January 8, 2024) SR–
MEMX–2023–38.
9 See SR–MEMX–2024–17.
10 See SR–MEMX–2024–20.
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90792
Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Notices
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SR–MEMX–2024–23.11 Accordingly, the
Exchange’s collection of ORF is
currently scheduled to sunset on
October 31, 2024. The Exchange
proposes to extend the existing sunset to
May 31, 2025, for the reasons described
herein.
The ORF is designed to recover a
material portion of the costs to the
Exchange of the supervision and
regulation of Members’ customer
options business, including performing
routine surveillances and investigations,
as well as policy, rulemaking,
interpretive and enforcement activities.
The Exchange believes that revenue
generated from the ORF, when
combined with all of the Exchange’s
other regulatory fees and fines, will
cover a material portion, but not all, of
the Exchange’s regulatory costs.
Currently, all other registered options
exchanges impose ORF on their
members, and those exchanges also
charge ORF for executions occurring on
MEMX Options cleared by their
customers.12
11 See Securities Exchange Act Release No.
100253 (May 31, 2024), 89 FR 48473 (June 6, 2024
(SR–MEMX–2024–23).
12 See Securities Exchange Act Release Nos.
58817 (October 20, 2008), 73 FR 63744 (October 27,
2008) (SR–CBOE–2008–05) (notice of filing and
immediate effectiveness of Cboe Exchange, Inc.
(‘‘CBOE’’) adopting an ORF applicable to
transactions across all options exchanges); 61133
(December 9, 2009), 74 FR 66715 (December 16,
2009) (SR–Phlx–2009–100) (notice of filing and
immediate effectiveness of Nasdaq PHLX LLC
(‘‘Phlx’’) adopting an ORF applicable to transactions
across all options exchanges); 61154 (December 11,
2009), 74 FR 67278 (December 18, 2009) (SR–ISE–
2009–105) (notice of filing and immediate
effectiveness of Nasdaq ISE, LLC (‘‘ISE’’) adopting
an ORF applicable to transactions across all options
exchanges); 61388 (January 20, 2010), 75 FR 4431
(January 27, 2010) (SR–BX–2010–001) (notice of
filing and immediate effectiveness of Nasdaq OMX
BX, Inc. (‘‘BX’’) adopting an ORF applicable to
transactions across all options exchanges); 70200
(August 14, 2013) 78 FR 51242 (August 20, 2013)
(SR–Topaz–2013–01)) (notice of filing and
immediate effectiveness of Nasdaq GEMX, LLC
(‘‘GEMX’’), formerly known as ISE Gemini and
Topaz Exchange, adopting an ORF applicable to
transactions across all options exchanges); 64400
(May 4, 2011), 76 FR 27118 (May 10, 2011) (SR–
NYSEAmex-2011–27) (notice of filing and
immediate effectiveness of NYSE Amex LLC
(‘‘NYSE AMEX’’) adopting an ORF applicable to
transactions across all options exchanges); 64399
(May 4, 2011), 76 FR 27114 (May 10, 2011) (SR–
NYSEArca–2011–20) (notice of filing and
immediate effectiveness of NYSE Arca, Inc. (‘‘NYSE
Arca’’) adopting an ORF applicable to transactions
across all options exchanges); 65913 (December 8,
2011), 76 FR 77883 (December 14, 2011) (SR–
NASDAQ–2011–163) (notice of filing and
immediate effectiveness of Nasdaq Options Market
(‘‘NOM’’) adopting an ORF applicable to
transactions across all options exchanges); 66979
(May 14, 2012), 77 FR 29740 (May 18, 2012) (SR–
BOX–2012–002) (notice of filing and immediate
effectiveness of BOX Options Exchange LLC
(‘‘BOX’’) adopting an ORF applicable to
transactions across all options exchanges); 67596
(August 6, 2012), 77 FR 47902 (August 10, 2012)
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The Exchange notes 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,
MIAX Pearl, MIAX Emerald, Cboe, Cboe
EDGX Options, and C2.13 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
(SR–C2–2012–023) (notice of filing and immediate
effectiveness of C2 Options Exchange, Inc. (‘‘C2’’)
adopting an ORF applicable to transactions across
all options exchanges); 68711 (January 23, 2013) 78
FR 6155 (January 29, 2013) (SR–MIAX–2013–01)
(notice of filing and immediate effectiveness of
Miami International Securities Exchange LLC
(‘‘MIAX’’) adopting an ORF applicable to
transactions across all options exchanges); 74214
(February 5, 2015), 80 FR 7665 (February 11, 2015)
(SR–BATS–2015–08) (notice of filing and
immediate effectiveness of Cboe BZX Exchange,
Inc. (‘‘BZX’’) formerly known as BATS, adopting an
ORF applicable to transactions across all options
exchanges); 80025 (February 13, 2017) 82 FR 11081
(February 17, 2017) (SR–BatsEDGX–2017–04)
(notice of filing and immediate effectiveness of
Cboe EDGX Exchange, Inc. (‘‘EDGX’’) formerly
known as Bats EDGX Exchange, Inc., adopting an
ORF applicable to transactions across all options
exchanges); 80875 (June 7, 2017) 82 FR 27096 (June
13, 2017) (SR–PEARL–2017–26) (notice of filing
and immediate effectiveness of MIAX Pearl, LLC
(‘‘MIAX Pearl’’) adopting an ORF applicable to
transactions across all options exchanges); 85127
(February 13, 2019) 84 FR 5173 (February 20, 2019)
(SR–MRX–2019–03) (notice of filing and immediate
effectiveness of Nasdaq MRX, LLC (‘‘MRX’’)
adopting an ORF applicable to transactions across
all options exchanges); 85251 (March 6, 2019) 84 FR
8931 (March 12, 2019) (SR–EMERALD–2019–01)
(notice of filing and immediate effectiveness of
MIAX Emerald LLC (‘‘MIAX Emerald’’) adopting an
ORF applicable to transactions across all options
exchanges).
13 See Securities Exchange Act Release No. 87168
(September 30, 2019), 84 FR 53210 (October 4,
2019) (SR–Emerald-2019–29); Securities Exchange
Act Release No. 87167 (September 30, 2019), 84 FR
53189 (October 4, 2019) (SR–PEARL–2019–23);
Securities Exchange Act Release No. 87169
(September 30, 2019), 84 FR 53195 (October 4,
2019) (SR–MIAX–2019–35); Securities Exchange
Act Release No. 87170 (September 30, 2019), 84 FR
53213 (October 4, 2019) (SR–CBOE–2019–040);
Securities Exchange Act Release No. 87172
(September 30, 2019) 84 FR 53192 (October 4, 2019)
(SR–CboeEDGX–2019–051); Securities Exchange
Act Release No 87171 (September 30, 2019), 84 FR
53200 (October 4, 2019) (SR–C2–2019–018);
Securities Exchange Act Release No. 86832 (August
30, 2019), 84 FR 46980 (September 6, 2019) (SR–
NYSEArca-2019–49); Securities Exchange Act
Release No. 86833 (August 30, 2019) 84 FR 47029
(September 6, 2019) (SR–NYSEAMER–2019–27).
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regarding options transaction volume
and did not provide any information on
those exchanges’ historic or projected
options regulatory costs (including the
costs of regulating activity that cleared
in the ‘‘customer’’ range and the costs of
regulating activity that occurred off
exchange), the amount of regulatory
revenue they had generated and
expected to generate from the ORF as
well as other sources, or the ‘‘material
portion’’ of options regulatory expenses
that they sought to recover from the
ORF. Each of those exchanges withdrew
their filings, but continue charging ORF
today as discussed above. Since that
time, MEMX Options launched and
commenced operations and as noted
previously, its Initial ORF Filing was
also suspended.14 Unlike its
competitors noted above, however, the
Exchange did not have a previously
implemented ORF to continue charging
notwithstanding said suspensions. As
such, the Exchange proposed to
establish an ORF but has maintained a
sunset date, in order to allow it time to
inform its approach to the ORF moving
forward.
MEMX is a new exchange operator
founded by a diverse group of market
participants to bring competition to the
U.S. securities markets. Over the past
year, the Exchange has engaged with
retail brokers, market makers, and other
options market participants on potential
paths to address industry concerns
about existing ORF practices. The result
of those efforts have made clear that
there is not yet consensus among market
participants on a path forward that
would address their stated concerns in
a manner that would effect change
broadly across all U.S. options
exchanges. As such, the Exchange
proposes additional time to work
towards a permanent ORF solution by
gathering relevant data internally as
well from other industry participants,
while continuing to charge as other
options exchanges currently do, until
May 31, 2025, at which time its ORF
will automatically sunset.
The Exchange notes that if, during the
proposed sunset period of October 31,
2024 through May 31, 2025, a viable
alternative methodology for the ORF
presents itself, including the possibility
that the Exchange proposes to
implement a model based on the Nasdaq
Proposals or an alternative to such
proposals, the Exchange would
endeavor to implement said alternative
prior to the proposed sunset date. In
other words, the existence of the sunset
date of May 31, 2025, for the Exchange’s
current ORF would not preclude the
14 See
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Exchange from filing to modify its ORF
methodology prior to that date, if
applicable.
As a new exchange, not having the
opportunity to fund a portion of its
regulatory program through the same
regulatory fee charged by every other
options exchange would place an undue
disadvantage upon the Exchange’s
regulatory program and options
business as a whole. Further, the
Exchange emphasizes that other
exchanges will be charging ORF for
transactions occurring on MEMX
Options, and as such, it follows that the
Exchange that is primarily responsible
for monitoring those transactions should
also be able to charge the ORF for
activity occurring on its own market, as
well as transactions it surveils on away
markets. Again, the Exchange is
committed to facilitating and joining
efforts to revamp the ORF, however, it
must be afforded additional time to
gather data and analysis both internally
and externally, while recouping a
portion of its regulatory costs via the
ORF as all other options exchanges
currently do.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 15
in general, and furthers the objectives of
Section 6(b)(4) of the Act 16 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 17 in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers.
The 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. Extending the
current ORF sunset date to May 31,
2025 is reasonable because continued
collection of ORF will serve to balance
the Exchange’s regulatory revenue
against the anticipated regulatory costs,
15 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
17 15 U.S.C. 78f(b)(5).
16 15
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thereby ensuring proper regulatory
funding. Moreover, the Exchange’s ORF
rate is significantly lower than the
amount of ORF assessed by other
exchange groups.18
The Exchange notes that while certain
individual options exchanges do charge
a lower ORF than that currently charged
by the Exchange, each of these options
exchanges is part of an exchange
‘‘group’’ (i.e., affiliated with other
options exchanges). In turn, each of
these exchange groups charges more
than two (2) to five (5) times the amount
of ORF as a group when compared to
the Exchange’s ORF rate.19 While each
additional options exchange is its own
legal entity with regulatory obligations
under the Act to regulate its members,
there is significant scale that can be
achieved for an exchange group that
operates multiple exchanges, including
with respect to regulation, and this scale
allows such options exchanges to
operate with a lower assessment of ORF.
In other words, the initial fixed costs
associated with implementing an
exchange group’s options regulatory
program are scalable as additional
options exchanges are launched by that
exchange group.
Extending the sunset date is also
reasonable because doing so would
allow the Exchange additional time to
inform its approach to ORF moving
forward while recouping a portion of its
regulatory expenses via the ORF as
other options exchanges do. If the
18 See, e.g., NYSE Arca Options Fees and Charges,
Options Regulatory Fee (‘‘ORF’’) and NYSE
American Options Fees Schedule, Section VII(A),
which provide that ORF is assessed at a rate of
$0.0055 per contract for each respective exchange.
See also Nasdaq PHLX, Options 7 Pricing Schedule,
Section 6(D), which provides for an ORF rate of
$0.0034 per contract, Cboe Options Fee Schedule,
which provides an ORF rate of $0.0017 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.
19 Each of MIAX Emerald, Cboe BZX Options,
Cboe C2 Options, Cboe EDGX Options, Nasdaq ISE
Gemini, Nasdaq ISE and Nasdaq BX Options
charges a lower rate than $0.0015 per contract,
which is the rate proposed by the Exchange.
However, the Cboe exchanges, comprised of four
options exchanges, charges an aggregate ORF rate of
$0.0021 per contract (more than the Exchange’s
current rate), the MIAX exchanges, comprised of
four options exchanges, charges an aggregate ORF
rate of $0.0056 per contract (nearly 4 times the
Exchange’s current rate); and the Nasdaq exchanges,
comprised of six options exchanges, charges an
aggregate ORF rate of $0.0084 per contract (nearly
6 times the Exchange’s current rate). The Exchange
notes that the NYSE exchanges, comprised of two
options exchanges, charges an aggregate ORF rate of
$0.011 per contract (over 7 times the Exchange’s
current rate).
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90793
Exchange were not allowed to charge an
ORF during this additional time period,
then after the sunset date of October 31,
2024, it would be forced to pay for its
regulatory program solely out of
business revenues while working
towards an alternative ORF solution,
unlike every other competing exchange,
each of which would continue to assess
an ORF, including on transactions
executed on MEMX Options,
indefinitely. This would impact
MEMX’s ability to assure adequate
funding of its regulatory program.
Extending the ORF sunset date to May
31, 2025, is also equitable and not
unfairly discriminatory because prior to
the proposed sunset date, the ORF
would continue to be objectively
allocated to Members in a manner that
is consistent with the ORF currently
imposed by the other seventeen (17)
options exchanges. The Exchange will
continue to monitor the amount of
revenue collected from the ORF to
ensure that it, in combination with its
other regulatory fees and fines, does not
exceed the Exchange’s total regulatory
costs. The Exchange has designed the
ORF to generate revenues that, when
combined with all of the Exchange’s
other regulatory fees, will be less than
75% of the Exchange’s regulatory costs,
which is consistent with the Exchange’s
by-laws that state in Section 17.4(b):
‘‘[a]ny Regulatory Funds shall not be
used for non-regulatory purposes or
distributed, advanced or allocated to
any Company Member, but rather, shall
be applied to fund regulatory operations
of the Company (including surveillance
and enforcement activities) . . .’’ 20
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is 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 Exchange’s
ORF 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 intermarket burden on competition because
it will be a regulatory fee that supports
regulation and customer protection in
furtherance of the purposes of the Act.
The Exchange is obligated to ensure that
the amount of regulatory revenue
collected from the ORF, in combination
20 See MEMX LLC—LLC Agreement at https://
info.memxtrading.com/regulation/governance/.
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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Notices
with its other regulatory fees and fines,
does not exceed regulatory costs.
The Exchange’s ORF, as described
herein, is lower than or comparable to
fees charged by other options exchanges
(though as noted above, some exchange
groups do have options exchanges
operating with a lower ORF on a
standalone basis).
The Exchange notes that while it does
not believe that its ORF will impose any
burden on inter-market competition, the
Exchange being precluded from
charging an ORF after October 31, 2024,
while other options exchanges are
permitted to continue to charge ORF
would, in-fact, significantly burden the
Exchange’s ability to assure adequate
funding of its regulatory program. As
noted above, the Exchange is a new
entrant in the highly competitive
environment for equity options trading.
As also noted above, all seventeen (17)
other 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 possible
that it and other exchanges may adopt
ORF fees based on the Nasdaq Proposals
or based on an alternative model during
the proposed sunset period, and the
Exchange is not precluded from
adopting said alternative during the
proposed sunset period. However, in
order to be treated similarly to these
exchanges, it must, in fact, impose an
ORF on its Members during this
additional sunset period, and the
inability to do so would result in an
unfair disadvantage to the Exchange.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 21 and Rule
19b–4(f)(2) 22 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
21 15
22 17
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
VerDate Sep<11>2014
17:17 Nov 15, 2024
Jkt 265001
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
submitted on or before December 9,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Sherry R. Haywood,
Assistant Secretary.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
[FR Doc. 2024–26754 Filed 11–15–24; 8:45 am]
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–2024–42 on the subject line.
Self-Regulatory Organizations; NYSE
National, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the Service for
Virtual Control Circuits in the
Connectivity Fee Schedule
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–2024–42. 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–2024–42 and should be
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on October
30, 2024, NYSE National, Inc. (‘‘NYSE
National’’ or the ‘‘Exchange’’) 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.
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101578; File No. SR–
NYSENAT–2024–28]
November 12, 2024.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
service for virtual control circuits in the
Connectivity Fee Schedule. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
E:\FR\FM\18NON1.SGM
18NON1
]]>Agencies
[Federal Register Volume 89, Number 222 (Monday, November 18, 2024)]
[Notices]
[Pages 90791-90794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-26754]
[[Page 90791]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101588; File No. SR-MEMX-2024-42]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule to Extend the Sunset Provision Related to the
Options Regulatory Fee (ORF)
November 12, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 31, 2024, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ and non-
Members of the Exchange (the ``Fee Schedule'') pursuant to Exchange
Rules 15.1(a) and (c) to extend the current sunset date of October 31,
2024 applicable to the Options Regulatory Fee (``ORF'') to May 31,
2025. The Exchange proposes to implement the changes to the Fee
Schedule pursuant to this proposal immediately. The text of the
proposed rule change is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Options Fee Schedule related to
the ORF to extend the current sunset date of October 31, 2024 to May
31, 2025, and thus continue charging the previously established ORF in
the amount of $0.0015 per contract side through May 31, 2025. As
discussed herein, the ORF sunset date was initially proposed to provide
time for the Exchange to discuss alternative ORF models with its
Members. However, those discussions have made clear that there is there
is [sic] not yet consensus among market participants on a path forward
that would address industry concerns in a manner that would effect
change broadly across all U.S. options exchanges. In addition, one of
the Exchange's competitors has recently proposed a new model with
respect to ORF that the Exchange is still reviewing and which has yet
to receive public feedback from the industry.\4\ Thus, the Exchange
proposes to extend the automatic sunset date of October 31, 2024 until
May 31, 2025, in order to provide it additional time to inform its
approach to the ORF after the sunset date while continuing to fund a
portion of its regulatory program via ORF so that it may operate on
equal footing with each of the seventeen (17) other options exchanges
that charge similar regulatory fees in amounts that far exceed the
relatively modest amounts collected by the Exchange.
---------------------------------------------------------------------------
\4\ Proposals have been filed for each of the six options
markets operated by Nasdaq OMX and affiliates (collectively, the
``Nasdaq Proposals''); see, e.g., SR-Nasdaq-2024-58, which was filed
by the Nasdaq Stock Market LLC on October 23, 2024, available at:
https://listingcenter.nasdaq.com/rulebook/NASDAQ/rulefilings; and
SR-Phlx-2024-50, which was filed by Nasdaq PHLX LLC on October 23,
2024, available at: https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings.
---------------------------------------------------------------------------
As background, MEMX previously filed a proposal to establish an ORF
in the amount of $0.0015 per contract side that would automatically
sunset on September 30, 2024 (the ``Initial ORF Filing'').\5\ The
Initial ORF Filing was published for comment in the Federal Register on
October 4, 2023.\6\ The Commission received no comments on the Initial
ORF Filing before November 24, 2023. On that date, the Commission
issued a 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 (the ``OIP'') and
requested public comment and additional information on various aspects
of the Initial ORF Filing.\7\ To date, the Commission has received no
comment letters in response to the OIP. The Exchange withdrew the
Initial ORF Filing on December 1, 2023 and submitted a new proposal for
immediate effectiveness (``Second ORF Filing'').\8\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 98585 (September 28,
2023), 88 FR 68692 (October 4, 2023) (SR-MEMX-2023-25).
\6\ See supra note 5.
\7\ See Securities Exchange Act Release No. 99017 (November 24,
2023), 88 FR 83590 (November 30, 2023) (SR-MEMX-2023-25).
Additionally, on November 24, 2023, solely for the purposes of
consistent billing for the entire month of November 2023, the
Exchange filed SR-MEMX-2023-31 with the Commission, which proposed
to keep the Initial ORF rate of $0.0015 per contract side that had
been charged since September 27th in place for November 24 through
November 30, 2023. See Securities Exchange Act Release No. 99112
(December 7, 2023), 88 FR 86417 (SR-MEMX-2023-31).
\8\ See SR-MEMX-2023-33. In order to make certain clarifying
changes, the Exchange withdrew the Second ORF Filing on December 13,
2023, and submitted a third proposal for immediate effectiveness
(``Third ORF Filing''). See SR-MEMX-2023-34. Again, in order to make
certain clarifying changes, the Exchange withdrew the Third ORF
Filing on December 19, 2023, and submitted a fourth proposal for
immediate effectiveness (``Fourth ORF Filing''). See SR-MEMX-2023-
36. On December 20, 2023, in order to correct an inadvertent
administrative error, the Exchange withdrew the Fourth ORF Filing
and submitted a fifth proposal for immediate effectiveness (``Fifth
ORF Filing'' and together with the Third ORF Filing and Fourth ORF
Filing, the ``Subsequent Filings''). See Securities Exchange Act
Release No. 99259 (January 2, 2024), 89 FR 965 (January 8, 2024) SR-
MEMX-2023-38.
---------------------------------------------------------------------------
The Second Filing and Subsequent Filings proposed the same fee as
in the Initial ORF Filing, but with a modified sunset date of May 31,
2024, which was four months prior to the proposed sunset date in the
Initial ORF Filing. On May 1, 2024, the Exchange proposed to remove the
automatic sunset date of May 31, 2024 altogether,\9\ however, the
Exchange withdrew that filing and replaced it with a new filing that
proposed a new sunset date of October 31, 2024 in order to provide more
time to attempt to reach a consensus on ORF moving forward, while also
operating on a level playing field with incumbent options exchanges
that are allowed to recoup a portion of their regulatory costs via the
ORF.\10\ In order to make certain clarifying changes, on May 23, 2024,
the Exchange withdrew that proposal and replaced it with SR-MEMX-2024-
22. Lastly, in order to correct an inadvertent error, on May 28, 2024,
the Exchange withdrew SR-MEMX-2024-22 and replaced it with
[[Page 90792]]
SR-MEMX-2024-23.\11\ Accordingly, the Exchange's collection of ORF is
currently scheduled to sunset on October 31, 2024. The Exchange
proposes to extend the existing sunset to May 31, 2025, for the reasons
described herein.
---------------------------------------------------------------------------
\9\ See SR-MEMX-2024-17.
\10\ See SR-MEMX-2024-20.
\11\ See Securities Exchange Act Release No. 100253 (May 31,
2024), 89 FR 48473 (June 6, 2024 (SR-MEMX-2024-23).
---------------------------------------------------------------------------
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of Members' customer
options business, including performing routine surveillances and
investigations, as well as policy, rulemaking, interpretive and
enforcement activities. The Exchange believes that revenue generated
from the ORF, when combined with all of the Exchange's other regulatory
fees and fines, will cover a material portion, but not all, of the
Exchange's regulatory costs. Currently, all other registered options
exchanges impose ORF on their members, and those exchanges also charge
ORF for executions occurring on MEMX Options cleared by their
customers.\12\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release Nos. 58817 (October 20,
2008), 73 FR 63744 (October 27, 2008) (SR-CBOE-2008-05) (notice of
filing and immediate effectiveness of Cboe Exchange, Inc. (``CBOE'')
adopting an ORF applicable to transactions across all options
exchanges); 61133 (December 9, 2009), 74 FR 66715 (December 16,
2009) (SR-Phlx-2009-100) (notice of filing and immediate
effectiveness of Nasdaq PHLX LLC (``Phlx'') adopting an ORF
applicable to transactions across all options exchanges); 61154
(December 11, 2009), 74 FR 67278 (December 18, 2009) (SR-ISE-2009-
105) (notice of filing and immediate effectiveness of Nasdaq ISE,
LLC (``ISE'') adopting an ORF applicable to transactions across all
options exchanges); 61388 (January 20, 2010), 75 FR 4431 (January
27, 2010) (SR-BX-2010-001) (notice of filing and immediate
effectiveness of Nasdaq OMX BX, Inc. (``BX'') adopting an ORF
applicable to transactions across all options exchanges); 70200
(August 14, 2013) 78 FR 51242 (August 20, 2013) (SR-Topaz-2013-01))
(notice of filing and immediate effectiveness of Nasdaq GEMX, LLC
(``GEMX''), formerly known as ISE Gemini and Topaz Exchange,
adopting an ORF applicable to transactions across all options
exchanges); 64400 (May 4, 2011), 76 FR 27118 (May 10, 2011) (SR-
NYSEAmex-2011-27) (notice of filing and immediate effectiveness of
NYSE Amex LLC (``NYSE AMEX'') adopting an ORF applicable to
transactions across all options exchanges); 64399 (May 4, 2011), 76
FR 27114 (May 10, 2011) (SR-NYSEArca-2011-20) (notice of filing and
immediate effectiveness of NYSE Arca, Inc. (``NYSE Arca'') adopting
an ORF applicable to transactions across all options exchanges);
65913 (December 8, 2011), 76 FR 77883 (December 14, 2011) (SR-
NASDAQ-2011-163) (notice of filing and immediate effectiveness of
Nasdaq Options Market (``NOM'') adopting an ORF applicable to
transactions across all options exchanges); 66979 (May 14, 2012), 77
FR 29740 (May 18, 2012) (SR-BOX-2012-002) (notice of filing and
immediate effectiveness of BOX Options Exchange LLC (``BOX'')
adopting an ORF applicable to transactions across all options
exchanges); 67596 (August 6, 2012), 77 FR 47902 (August 10, 2012)
(SR-C2-2012-023) (notice of filing and immediate effectiveness of C2
Options Exchange, Inc. (``C2'') adopting an ORF applicable to
transactions across all options exchanges); 68711 (January 23, 2013)
78 FR 6155 (January 29, 2013) (SR-MIAX-2013-01) (notice of filing
and immediate effectiveness of Miami International Securities
Exchange LLC (``MIAX'') adopting an ORF applicable to transactions
across all options exchanges); 74214 (February 5, 2015), 80 FR 7665
(February 11, 2015) (SR-BATS-2015-08) (notice of filing and
immediate effectiveness of Cboe BZX Exchange, Inc. (``BZX'')
formerly known as BATS, adopting an ORF applicable to transactions
across all options exchanges); 80025 (February 13, 2017) 82 FR 11081
(February 17, 2017) (SR-BatsEDGX-2017-04) (notice of filing and
immediate effectiveness of Cboe EDGX Exchange, Inc. (``EDGX'')
formerly known as Bats EDGX Exchange, Inc., adopting an ORF
applicable to transactions across all options exchanges); 80875
(June 7, 2017) 82 FR 27096 (June 13, 2017) (SR-PEARL-2017-26)
(notice of filing and immediate effectiveness of MIAX Pearl, LLC
(``MIAX Pearl'') adopting an ORF applicable to transactions across
all options exchanges); 85127 (February 13, 2019) 84 FR 5173
(February 20, 2019) (SR-MRX-2019-03) (notice of filing and immediate
effectiveness of Nasdaq MRX, LLC (``MRX'') adopting an ORF
applicable to transactions across all options exchanges); 85251
(March 6, 2019) 84 FR 8931 (March 12, 2019) (SR-EMERALD-2019-01)
(notice of filing and immediate effectiveness of MIAX Emerald LLC
(``MIAX Emerald'') adopting an ORF applicable to transactions across
all options exchanges).
---------------------------------------------------------------------------
The Exchange notes 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, MIAX Pearl, MIAX Emerald, Cboe,
Cboe EDGX Options, and C2.\13\ Each of those exchanges had filed to
increase their ORF, and the Commission indicated that each of those
filings lacked detail and specificity, signaling that more information
was needed to speak to whether the proposed increased ORFs were
reasonable, equitably allocated and not unfairly discriminatory,
particularly given that the ORF is assessed on transactions that clear
in the ``customer'' range and regardless of the exchange on which the
transaction occurs. The Commission also noted that the filings provided
only broad general statements regarding options transaction volume and
did not provide any information on those exchanges' historic or
projected options regulatory costs (including the costs of regulating
activity that cleared in the ``customer'' range and the costs of
regulating activity that occurred off exchange), the amount of
regulatory revenue they had generated and expected to generate from the
ORF as well as other sources, or the ``material portion'' of options
regulatory expenses that they sought to recover from the ORF. Each of
those exchanges withdrew their filings, but continue charging ORF today
as discussed above. Since that time, MEMX Options launched and
commenced operations and as noted previously, its Initial ORF Filing
was also suspended.\14\ Unlike its competitors noted above, however,
the Exchange did not have a previously implemented ORF to continue
charging notwithstanding said suspensions. As such, the Exchange
proposed to establish an ORF but has maintained a sunset date, in order
to allow it time to inform its approach to the ORF moving forward.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 87168 (September
30, 2019), 84 FR 53210 (October 4, 2019) (SR-Emerald-2019-29);
Securities Exchange Act Release No. 87167 (September 30, 2019), 84
FR 53189 (October 4, 2019) (SR-PEARL-2019-23); Securities Exchange
Act Release No. 87169 (September 30, 2019), 84 FR 53195 (October 4,
2019) (SR-MIAX-2019-35); Securities Exchange Act Release No. 87170
(September 30, 2019), 84 FR 53213 (October 4, 2019) (SR-CBOE-2019-
040); Securities Exchange Act Release No. 87172 (September 30, 2019)
84 FR 53192 (October 4, 2019) (SR-CboeEDGX-2019-051); Securities
Exchange Act Release No 87171 (September 30, 2019), 84 FR 53200
(October 4, 2019) (SR-C2-2019-018); Securities Exchange Act Release
No. 86832 (August 30, 2019), 84 FR 46980 (September 6, 2019) (SR-
NYSEArca-2019-49); Securities Exchange Act Release No. 86833 (August
30, 2019) 84 FR 47029 (September 6, 2019) (SR-NYSEAMER-2019-27).
\14\ See supra note 7.
---------------------------------------------------------------------------
MEMX is a new exchange operator founded by a diverse group of
market participants to bring competition to the U.S. securities
markets. Over the past year, the Exchange has engaged with retail
brokers, market makers, and other options market participants on
potential paths to address industry concerns about existing ORF
practices. The result of those efforts have made clear that there is
not yet consensus among market participants on a path forward that
would address their stated concerns in a manner that would effect
change broadly across all U.S. options exchanges. As such, the Exchange
proposes additional time to work towards a permanent ORF solution by
gathering relevant data internally as well from other industry
participants, while continuing to charge as other options exchanges
currently do, until May 31, 2025, at which time its ORF will
automatically sunset.
The Exchange notes that if, during the proposed sunset period of
October 31, 2024 through May 31, 2025, a viable alternative methodology
for the ORF presents itself, including the possibility that the
Exchange proposes to implement a model based on the Nasdaq Proposals or
an alternative to such proposals, the Exchange would endeavor to
implement said alternative prior to the proposed sunset date. In other
words, the existence of the sunset date of May 31, 2025, for the
Exchange's current ORF would not preclude the
[[Page 90793]]
Exchange from filing to modify its ORF methodology prior to that date,
if applicable.
As a new exchange, not having the opportunity to fund a portion of
its regulatory program through the same regulatory fee charged by every
other options exchange would place an undue disadvantage upon the
Exchange's regulatory program and options business as a whole. Further,
the Exchange emphasizes that other exchanges will be charging ORF for
transactions occurring on MEMX Options, and as such, it follows that
the Exchange that is primarily responsible for monitoring those
transactions should also be able to charge the ORF for activity
occurring on its own market, as well as transactions it surveils on
away markets. Again, the Exchange is committed to facilitating and
joining efforts to revamp the ORF, however, it must be afforded
additional time to gather data and analysis both internally and
externally, while recouping a portion of its regulatory costs via the
ORF as all other options exchanges currently do.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \15\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \16\ 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 \17\ 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\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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. Extending the
current ORF sunset date to May 31, 2025 is reasonable because continued
collection of ORF will serve to balance the Exchange's regulatory
revenue against the anticipated regulatory costs, thereby ensuring
proper regulatory funding. Moreover, the Exchange's ORF rate is
significantly lower than the amount of ORF assessed by other exchange
groups.\18\
---------------------------------------------------------------------------
\18\ See, e.g., NYSE Arca Options Fees and Charges, Options
Regulatory Fee (``ORF'') and NYSE American Options Fees Schedule,
Section VII(A), which provide that ORF is assessed at a rate of
$0.0055 per contract for each respective exchange. See also Nasdaq
PHLX, Options 7 Pricing Schedule, Section 6(D), which provides for
an ORF rate of $0.0034 per contract, Cboe Options Fee Schedule,
which provides an ORF rate of $0.0017 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.
---------------------------------------------------------------------------
The Exchange notes that while certain individual options exchanges
do charge a lower ORF than that currently charged by the Exchange, each
of these options exchanges is part of an exchange ``group'' (i.e.,
affiliated with other options exchanges). In turn, each of these
exchange groups charges more than two (2) to five (5) times the amount
of ORF as a group when compared to the Exchange's ORF rate.\19\ While
each additional options exchange is its own legal entity with
regulatory obligations under the Act to regulate its members, there is
significant scale that can be achieved for an exchange group that
operates multiple exchanges, including with respect to regulation, and
this scale allows such options exchanges to operate with a lower
assessment of ORF. In other words, the initial fixed costs associated
with implementing an exchange group's options regulatory program are
scalable as additional options exchanges are launched by that exchange
group.
---------------------------------------------------------------------------
\19\ Each of MIAX Emerald, Cboe BZX Options, Cboe C2 Options,
Cboe EDGX Options, Nasdaq ISE Gemini, Nasdaq ISE and Nasdaq BX
Options charges a lower rate than $0.0015 per contract, which is the
rate proposed by the Exchange. However, the Cboe exchanges,
comprised of four options exchanges, charges an aggregate ORF rate
of $0.0021 per contract (more than the Exchange's current rate), the
MIAX exchanges, comprised of four options exchanges, charges an
aggregate ORF rate of $0.0056 per contract (nearly 4 times the
Exchange's current rate); and the Nasdaq exchanges, comprised of six
options exchanges, charges an aggregate ORF rate of $0.0084 per
contract (nearly 6 times the Exchange's current rate). The Exchange
notes that the NYSE exchanges, comprised of two options exchanges,
charges an aggregate ORF rate of $0.011 per contract (over 7 times
the Exchange's current rate).
---------------------------------------------------------------------------
Extending the sunset date is also reasonable because doing so would
allow the Exchange additional time to inform its approach to ORF moving
forward while recouping a portion of its regulatory expenses via the
ORF as other options exchanges do. If the Exchange were not allowed to
charge an ORF during this additional time period, then after the sunset
date of October 31, 2024, it would be forced to pay for its regulatory
program solely out of business revenues while working towards an
alternative ORF solution, unlike every other competing exchange, each
of which would continue to assess an ORF, including on transactions
executed on MEMX Options, indefinitely. This would impact MEMX's
ability to assure adequate funding of its regulatory program.
Extending the ORF sunset date to May 31, 2025, is also equitable
and not unfairly discriminatory because prior to the proposed sunset
date, the ORF would continue to be objectively allocated to Members in
a manner that is consistent with the ORF currently imposed by the other
seventeen (17) options exchanges. The Exchange will continue to monitor
the amount of revenue collected from the ORF to ensure that it, in
combination with its other regulatory fees and fines, does not exceed
the Exchange's total regulatory costs. The Exchange has designed the
ORF to generate revenues that, when combined with all of the Exchange's
other regulatory fees, will be less than 75% of the Exchange's
regulatory costs, which is consistent with the Exchange's by-laws that
state in Section 17.4(b): ``[a]ny Regulatory Funds shall not be used
for non-regulatory purposes or distributed, advanced or allocated to
any Company Member, but rather, shall be applied to fund regulatory
operations of the Company (including surveillance and enforcement
activities) . . .'' \20\
---------------------------------------------------------------------------
\20\ See MEMX LLC--LLC Agreement at https://info.memxtrading.com/regulation/governance/.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is 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 Exchange's ORF is designed to enable the
Exchange to recover a material portion of the Exchange's cost related
to its regulatory activities. This proposal will not create an
unnecessary or inappropriate inter-market burden on competition because
it will be a regulatory fee that supports regulation and customer
protection in furtherance of the purposes of the Act. The Exchange is
obligated to ensure that the amount of regulatory revenue collected
from the ORF, in combination
[[Page 90794]]
with its other regulatory fees and fines, does not exceed regulatory
costs.
The Exchange's ORF, as described herein, is lower than or
comparable to fees charged by other options exchanges (though as noted
above, some exchange groups do have options exchanges operating with a
lower ORF on a standalone basis).
The Exchange notes that while it does not believe that its ORF will
impose any burden on inter-market competition, the Exchange being
precluded from charging an ORF after October 31, 2024, while other
options exchanges are permitted to continue to charge ORF would, in-
fact, significantly burden the Exchange's ability to assure adequate
funding of its regulatory program. As noted above, the Exchange is a
new entrant in the highly competitive environment for equity options
trading. As also noted above, all seventeen (17) other 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 possible that it and other exchanges may
adopt ORF fees based on the Nasdaq Proposals or based on an alternative
model during the proposed sunset period, and the Exchange is not
precluded from adopting said alternative during the proposed sunset
period. However, in order to be treated similarly to these exchanges,
it must, in fact, impose an ORF on its Members during this additional
sunset period, and the inability to do so would result in an unfair
disadvantage to the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \21\ and Rule 19b-4(f)(2) \22\ thereunder.
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\21\ 15 U.S.C. 78s(b)(3)(A)(ii).
\22\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-MEMX-2024-42 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-2024-42. 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-2024-42 and should be
submitted on or before December 9, 2024.
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\23\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-26754 Filed 11-15-24; 8:45 am]
BILLING CODE 8011-01-P
