[Federal Register Volume 84, Number 35 (Thursday, February 21, 2019)]
[Notices]
[Pages 5511-5513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02901]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85140; File No. SR-GEMX-2019-01)]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the
Options Regulatory Fee
February 14, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 1, 2019, Nasdaq GEMX, LLC (``GEMX'' or ``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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to revise GEMX's Pricing Schedule to amend
its Options Regulatory Fee or ``ORF''.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqgemx.cchwallstreet.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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Currently, GEMX assesses an ORF of $0.0020 per contract side. The
Exchange proposes to decrease this ORF to $0.0018 per contract side as
of February 1, 2019. GEMX proposes to decrease its ORF to ensure that
regulatory revenues will not exceed regulatory costs. The Exchange's
proposed change to the ORF should balance the Exchange's regulatory
revenue against the anticipated regulatory costs. The Exchange also
proposes to delete obsolete language in the rule text as described
herein.
Collection of ORF
Currently, GEMX assesses its ORF for each customer option
transaction that is either: (1) Executed by a Member on GEMX; or (2)
cleared by a GEMX Member at The Options Clearing Corporation (``OCC'')
in the customer range,\3\ even if the transaction was executed by a
non-member of GEMX, regardless of the exchange on which the transaction
occurs.\4\ If the OCC clearing member is a GEMX Member, ORF is assessed
and collected on all cleared customer contracts (after adjustment for
CMTA \5\ ); and (2) if the OCC clearing member is not a GEMX Member,
ORF is collected only on the cleared customer contracts executed at
GEMX, taking into account any CMTA instructions which may result in
collecting the ORF from a non-member.
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\3\ Members must record the appropriate account origin code on
all orders at the time of entry in order. The Exchange represents
that it has surveillances in place to verify that members mark
orders with the correct account origin code.
\4\ The Exchange uses reports from OCC when assessing and
collecting the ORF.
\5\ CMTA or Clearing Member Trade Assignment is a form of
``give-up'' whereby the position will be assigned to a specific
clearing firm at OCC.
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By way of example, if Broker A, a GEMX Member, routes a customer
order to CBOE and the transaction executes on CBOE and clears in Broker
A's OCC Clearing account, ORF will be collected by GEMX from Broker A's
clearing account at OCC via direct debit. While this transaction was
executed on a market other than GEMX, it was cleared by a GEMX Member
in the member's OCC clearing account in the customer range, therefore
there is a regulatory nexus between GEMX and the transaction. If Broker
A was not a GEMX Member, then no ORF should be assessed and collected
because there is no nexus; the transaction did not execute on GEMX nor
was it cleared by a GEMX Member.
In the case where a Member both executes a transaction and clears
the transaction, the ORF is assessed to and collected from that Member.
In the case where a Member executes a transaction and a different
member clears the transaction, the ORF is assessed to and collected
from the Member who clears the transaction and not the Member who
executes the transaction. In the case where a non-member executes a
transaction at an away market and a Member clears the transaction, the
ORF is assessed to and collected from the Member who clears the
transaction. In the case where a Member executes a transaction on GEMX
and a non-member clears the transaction, the ORF is assessed to the
Member that executed the transaction on GEMX and collected from the
non-member who cleared the transaction. In the case where a Member
executes a transaction at an away market and a non-member clears the
transaction, the ORF is not assessed to the Member who executed the
transaction or collected from the non-member who cleared the
transaction because the Exchange does not have access to the data to
make absolutely
[[Page 5512]]
certain that ORF should apply. Further, the data does not allow the
Exchange to identify the Member executing the trade at an away market.
ORF Revenue and Monitoring of ORF
The Exchange monitors the amount of revenue collected from the ORF
to ensure that it, in combination with other regulatory fees and fines,
does not exceed regulatory costs. In determining whether an expense is
considered a regulatory cost, the Exchange reviews all costs and makes
determinations if there is a nexus between the expense and a regulatory
function. The Exchange notes that fines collected by the Exchange in
connection with a disciplinary matter offset ORF.
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of its members,
including performing routine surveillances, investigations,
examinations, financial monitoring, and policy, rulemaking,
interpretive, and enforcement activities.
The Exchange believes that revenue generated from the ORF, when
combined with all of the Exchange's other regulatory fees, will cover a
material portion, but not all, of the Exchange's regulatory costs. The
Exchange will continue to monitor the amount of revenue collected from
the ORF to ensure that it, in combination with its other regulatory
fees and fines, does not exceed regulatory costs. If the Exchange
determines regulatory revenues exceed regulatory costs, the Exchange
will adjust the ORF by submitting a fee change filing to the
Commission.
Proposal
The Exchange proposes to decrease the ORF from $0.0020 to $0.0018
per contract side as of February 1, 2019 to ensure that regulatory
expenses will not exceed regulatory costs. The Exchange proposes to add
the following rule text to Options 7, Section 5, ``GEMX Members will be
assessed an Options Regulatory Fee of $0.0018 per contract side as of
February 1, 2019.''
The Exchange regularly reviews its ORF to ensure that the ORF, in
combination with its other regulatory fees and fines, does not exceed
regulatory costs. The Exchange believes this adjustment will permit the
Exchange to continue to cover a material portion of its regulatory
costs, while not exceeding regulatory costs.
The Exchange notified Members via an Options Trader Alert of the
proposed change to the ORF thirty (30) calendar days prior to the
proposed operative date, February 1, 2019.\6\ The Exchange believes
that the prior notification market participants will ensure market
participants are prepared to configure their systems to account
properly for the ORF.
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\6\ See Options Trader Alert #2018-46.
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Finally, the Exchange proposes to remove the following rule text
from Options 7, Section 5, ``The ORF is $0.0010 per contract side until
July 31, 2018. $0.0020 per contract side as of August 1, 2018''. This
text is obsolete as it references prior ORF rates which were effective
in the past.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act \8\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using its facility and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that decreasing the ORF from $0.0020 to
$0.0018 per contract side as of February 1, 2019 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 proposed adjustments noted herein will serve to
balance the Exchange's regulatory revenue against the anticipated
regulatory costs.
The Exchange believes that decreasing the ORF from $0.0020 to
$0.0018 per contract side as of February 1, 2019 is equitable and not
unfairly discriminatory because assessing the ORF to each Member for
options transactions cleared by OCC in the customer range where the
execution occurs on another exchange and is cleared by a GEMX Member is
an equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other persons using its facilities.
OCC collects the ORF on behalf of GEMX from Exchange clearing members
for all customer transactions they clear or from non-members for all
customer transactions they clear that were executed on GEMX. The
Exchange believes the ORF ensures fairness by assessing fees to Members
based on the amount of customer options business they conduct.
Regulating customer trading activity is much more labor intensive and
requires greater expenditure of human and technical resources than
regulating non-customer trading activity, which tends to be more
automated and less labor-intensive. As a result, the costs associated
with administering the customer component of the Exchange's overall
regulatory program are materially higher than the costs associated with
administering the non-customer component (e.g., Member proprietary
transactions) of its regulatory program.
The ORF is designed to recover a material portion of the costs of
supervising and regulating Members' customer options business including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. The Exchange will monitor the amount of revenue
collected from the ORF to ensure that it, in combination with its other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs. The Exchange has designed the ORF to generate
revenues that, when combined with all of the Exchange's other
regulatory fees, will be less than or equal to the Exchange's
regulatory costs, which is consistent with the Commission's view that
regulatory fees be used for regulatory purposes and not to support the
Exchange's business side.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. This proposal does not create
an unnecessary or inappropriate intra-market burden on competition
because the ORF applies to all customer activity, thereby raising
regulatory revenue to offset regulatory expenses. It also supplements
the regulatory revenue derived from non-customer activity. This
proposal does not create an unnecessary or inappropriate inter-market
burden on competition because it is a regulatory fee that supports
regulation in furtherance of the purposes of the Act. The Exchange is
obligated to ensure that the amount of regulatory revenue collected
from the ORF, in combination with its other regulatory fees and fines,
does not exceed regulatory costs.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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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.\9\ 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: (i) Necessary or appropriate in the public interest; (ii)
for the protection of investors; or (iii) 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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\9\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File No. SR-GEMX-2019-01 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 No. SR-GEMX-2019-01. 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 (http://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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File No. SR-GEMX-2019-01, and should be submitted on or
before March 14, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02901 Filed 2-20-19; 8:45 am]
BILLING CODE 8011-01-P