[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.

[[Page 5513]]

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