[Federal Register Volume 90, Number 102 (Thursday, May 29, 2025)]
[Notices]
[Pages 22797-22802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-09621]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103103; File No. SR-MRX-2025-11]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the
Methodology for Its Options Regulatory Fee as of January 2, 2026
May 22, 2025.
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 May 20, 2025, Nasdaq MRX, LLC (``MRX'' or ``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 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 amend MRX's Pricing Schedule at Options 7,
Section 5C, Options Regulatory Fee, to amend its current methodology of
collection.
While the changes proposed herein are effective upon filing, the
Exchange has designated the proposed rule change to be operative on
January 2, 2026.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/mrx/rulefilings,
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
MRX proposes to amend its current methodology of assessment and
collection of the Options Regulatory Fee or ``ORF'' to assess ORF only
for options transactions that occur on MRX that are cleared in the
Customer \3\ range at The Options Clearing Corporation (``OCC''). With
this proposal MRX would not assess ORF for transactions that occur on
other exchanges. Below is a more detailed description of the proposal.
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\3\ Currently, the ORF is assessed by MRX and collected via the
OCC from Priority Customers, Professional Customers, and Broker-
Dealers that are not affiliated with a clearing member. These market
participants clear in the ``C'' range at OCC. ORF will continue to
be assessed and collected from these market participants under the
new methodology. On MRX, a ``Priority Customer'' is a person or
entity that is not a broker/dealer in securities, and does not place
more than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s), as defined in
Nasdaq MRX Options 1, Section 1(a)(36); a ``Professional Customer''
is a person or entity that is not a broker/dealer and is not a
Priority Customer; and a ``Broker-Dealer'' order is an order
submitted by a Member for a broker-dealer account that is not its
own proprietary account.
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Background on Current ORF
Today, MRX assesses its ORF for each Customer option transaction
that is either: (1) executed by a Member \4\ on MRX; or (2) cleared by
an MRX Member at OCC in the Customer range, even if the transaction was
executed by a non-Member of MRX, regardless of the exchange on which
the transaction occurs.\5\ If the OCC clearing member is an MRX Member,
ORF is assessed and collected on all ultimately cleared Customer
contracts (after adjustment for CMTA \6\); and (2) if the OCC clearing
member is not an MRX Member, ORF is collected only on the cleared
Customer contracts executed at MRX, taking into account any CMTA
instructions which may result in collecting the ORF from a non-
Member.\7\ The current MRX ORF is $0.0004 per contract side.
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\4\ The term ``Member'' means an organization that has been
approved to exercise trading rights associated with Exchange Rights.
See General 1, Section 1(a)(14).
\5\ The Exchange uses reports from OCC when assessing and
collecting the ORF. Market participants must record the appropriate
account origin code on all orders at the time of entry of the order.
The Exchange represents that it has surveillances in place to verify
that members mark orders with the correct account origin code.
\6\ 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.
\7\ By way of example, if Broker A, an MRX 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
MRX from Broker A's clearing account at OCC via direct debit. While
this transaction was executed on a market other than MRX, it was
cleared by an MRX Member in the member's OCC clearing account in the
Customer range, therefore there is a regulatory nexus between MRX
and the transaction. If Broker A was not an MRX Member, then no ORF
should be assessed and collected because there is no nexus; the
transaction did not execute on MRX nor was it cleared by an MRX
Member.
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Today, in the case where a Member both executes a transaction and
clears the transaction, the ORF will be assessed to and collected from
that Member. Today, in the case where a Member executes a transaction
and a different Member clears the transaction, the ORF will be assessed
to and collected from the Member who clears the transaction and not the
Member who executes the transaction. Today, in the case where a non-
Member executes a transaction at an away market and a Member clears the
transaction, the ORF will be assessed to and collected from the Member
who clears the transaction. Today, in the case where a Member executes
a transaction on MRX and a non-Member clears the transaction, the ORF
will be assessed to the Member that executed the transaction on MRX and
collected from the non-Member who cleared the transaction. Today, in
the case where a Member executes a transaction at an away market and a
non-Member ultimately clears the transaction, the ORF will not be
assessed to the Member who executed the transaction or collected from
the
[[Page 22798]]
non-Member who cleared the transaction because the Exchange does not
have access to the data to make absolutely 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
Today, the Exchange monitors the amount of revenue collected from
the ORF (``ORF Regulatory Revenue'') to ensure that it, in combination
with other regulatory fees and fines, does not exceed Options
Regulatory Costs.\8\ In determining whether an expense is considered an
Options 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 Options Regulatory Cost.
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\8\ The regulatory costs for options comprise a subset of the
Exchange's regulatory budget that is specifically related to options
regulatory expenses and encompasses the cost to regulate all
Members' options activity (``Options Regulatory Cost'').
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ORF Regulatory Revenue, when combined with all of the Exchange's
other regulatory fees and fines, is designed to recover the Options
Regulatory Costs to the Exchange of the supervision and regulation of
member Customer options business including performing routine
surveillances, investigations, examinations, financial monitoring, and
policy, rulemaking, interpretive, and enforcement activities. Options
Regulatory Costs include direct regulatory expenses and certain
indirect expenses in support of the regulatory function. The direct
expenses include in-house and third-party service provider costs to
support the day-to-day regulatory work such as surveillance,
investigations and examinations. The indirect expenses are only those
expenses that are in support of the regulatory functions, such areas
include Office of the General Counsel, technology, finance, and
internal audit. Indirect expenses will not exceed 35% of the total
Options Regulatory Costs, in which case direct expenses could be 65% or
more of total Options Regulatory Costs.\9\
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\9\ Direct and indirect expenses are based on the Exchange's
2025 Regulatory Budget.
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Proposal for January 2, 2026
MRX has been reviewing its methodologies for the assessment and
collection of ORF. As a result of this review, MRX proposes to modify
its current ORF to continue to assess ORF for options transactions
cleared by OCC in the Customer range, however ORF would be assessed to
each MRX Member for executions that occur on MRX. Specifically, the ORF
would continue to be collected by OCC on behalf of MRX from MRX Members
and non-Members for all Customer transactions executed on MRX. ORF
would be assessed and collected on all ultimately cleared Customer
contracts, taking into account adjustments for CMTA that were provided
to MRX the same day as the trade.\10\
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\10\ Adjustments to CMTA that occur at OCC would not be taken
into account.
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Further, the Exchange would bill ORF according to the clearing
instructions provided on the execution. More specifically, MRX proposes
to assess ORF based on the clearing instruction provided on the
execution on trade date and would not take into consideration CMTA
changes or transfers that occur at OCC.\11\ As a result of this
proposed rule change, if a Member executes a Customer transaction on
MRX and is the clearing member on record on the transaction on MRX, the
ORF will be assessed to that Member. With this proposal, in the case
where a Member executes a Customer transaction on MRX and a different
Member is the clearing member on record on the transaction on MRX, the
ORF will be assessed to and collected from the Member who is the
clearing member on record on the transaction and not the Member who
executes the transaction. Additionally, in the case where a Member
executes a Customer transaction on MRX and a non-MRX Member is the
clearing member on record on the transaction on MRX, the ORF will be
assessed to the non-MRX Member who is the clearing member on record on
the transaction and not the Member who executes the transaction. With
this proposal, in the case where a Member executes a Customer
transaction on a non-MRX exchange, MRX will not assess an ORF,
regardless of how the transaction is cleared. As is the case today, OCC
will collect ORF from OCC clearing members on behalf of MRX based on
MRX's instructions.
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\11\ Adjustments that were made the same day as the trade on MRX
will be taken into account.
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With this proposal, the current MRX ORF of $0.0010 per contract
side would be increased to $0.0139 per contract side. With this
proposal, the Exchange will endeavor to ensure that ORF Regulatory
Revenue generated from ORF will not exceed 82% of Options Regulatory
Cost. MRX will continue to ensure that ORF Regulatory Revenue does not
exceed Options Regulatory Cost. As is the case today, the Exchange will
notify Members via an Options Trader Alert of any change in the amount
of the fee at least 30 calendar days prior to the effective date of the
change. In this case, the Exchange will notify Members via an Options
Trader Alert of these changes at least 30 calendar days prior to
January 2, 2026.
The Exchange utilized historical and current data from its
affiliated options exchanges to create a new regression model that
would tie expenses attributable to regulation to a respective
source.\12\ To that end, the Exchange plotted Customer volumes from
each exchange \13\ against Options Regulatory Cost from each exchange
for the Time Period. Specifically, the Exchange utilized standard
charting functionality to create a linear regression. The charting
functionality yields a ``slope'' of the line, representing the marginal
cost of regulation, as well as an ``intercept,'' representing the fixed
cost of regulation.\14\ The Exchange considered using non-linear
models, but concluded that the best R[supcaret]2 (``R-Squared'') \15\
results came from a standard y = Mx +B format for regulatory expense.
The R-Squared for the charting method ranged from 80% to 90%
historically. As noted, the plots below represent the Time Period. The
X-axis reflects Customer volumes by exchange, by quarter and the Y-axis
reflects regulatory expense by exchange.
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\12\ This model seeks to relate Options Regulatory Cost to
historical volumes on each Nasdaq affiliated exchange by market
participant. In creating this model, the Exchange did not rely on
data from a single SRO as it had in the past.
\13\ The Exchange utilized data from all Nasdaq affiliated
options exchanges to create this model from data for the 2024
calendar year (``Time Period'').
\14\ The Exchange utilized data from Time Period to calculate
the slope and intercept.
\15\ R-Squared is a statistical measure that indicates how much
of the variation of a dependent variable is explained by an
independent variable in a regression model. The formula for
calculating R-squared is: R2=1-Unexplained Variation/Total
Variation.
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[GRAPHIC] [TIFF OMITTED] TN29MY25.000
The results of this modelling indicated a high correlation and
intercept for the baseline cost of regulating the options market as a
whole. Specifically, the regression model indicated that (1) the
marginal cost of regulation is measurable, and significantly
attributable to Customer activity; and (2) the fixed cost of setting up
a regulatory regime should arguably be dispersed across the industry so
that all options exchanges have substantially similar revenue streams
to satisfy the ``intercept'' element of cost. When seeking to offset
the ``set-up'' cost of regulation, the Exchange attempted several
levels of attribution.\16\ This led the Exchange to utilize a model
with a two-factor regression on a quarterly basis for the 2024 calendar
year of volumes relative to the pool of expense data for the six Nasdaq
affiliated options exchanges. Once again, standard spreadsheet
functionality (including the Data Analysis Packet) was used to
determine the mathematics for this model.\17\
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\16\ Of note, through analysis of the results of this regression
model, there was no positive correlation that could be established
between Customer away volume and regulatory expense. The most
successful attribution was related to industry wide Firm Proprietary
and Broker-Dealer Transaction volume which accounted for
approximately 3-4% of the regulatory expense both on-exchange and
away.
\17\ The Exchange notes that various exchanges negotiate their
respective contracts independently with FINRA creating some
variability. Additionally, an exchange with a floor component would
create some variability.
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Utilizing the new regression model, and assumptions in the
proposal, the model demonstrates that Customer volumes are directly
attributable to marginal cost. Applying the regression coefficient
values historically, the Exchange established a ``normalization'' by
per options exchange. The primary driver of this need for
``normalization'' are negotiated regulatory contracts that were
negotiated at different points in time, yielding differences in per
contract regulatory costs by exchange. Normalization is therefore the
average of a given exchange's historical period (all four quarters in
2024) ratio of regulatory expense to revenue when using the regressed
values (for Customer ORF) that yields an effective rate by exchange.
The ``normalization'' was then multiplied to a ``targeted collection
rate'' of approximately 82% to arrive at ORF rates for Customer. Of
note, when comparing the ORF rates generated from this method,
historically, there appears to be a very tight relationship between the
estimated modeled collection and actual expense and the regulatory
expenses for that same period.
One other important aspect of this modeling is the input of Options
Regulatory Costs. The Exchange notes that in defining Options
Regulatory Costs it accounts for the nexus between the expense and
options regulation. By way of example, the Exchange excludes certain
indirect expenses such as payroll expenses, accounts receivable,
accounts payable, marketing, executive level expenses and corporate
systems.
The Exchange will continue to monitor ORF Regulatory Revenue to
ensure that it, in combination with other regulatory fees and fines,
does not exceed Options Regulatory Costs. In determining whether an
expense is considered an Options Regulatory Cost, the Exchange will
continue to review 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 will continue to offset Options Regulatory Cost.
As is the case today, ORF Regulatory Revenue is designed to recover
a material portion of the Options Regulatory Costs to the Exchange for
the supervision and regulation of Members' transactions, including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. As discussed above, Options Regulatory Costs
include direct regulatory expenses \18\ and certain indirect expenses
in support of the regulatory function.\19\
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\18\ The direct expenses include in-house and third-party
service provider costs to support the day-to-day regulatory work
such as surveillances, investigations and examinations.
\19\ The indirect expenses include support from such areas as
Office of the General Counsel, technology, finance and internal
audit.
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Finally, the Exchange notes that this proposal will sunset on
February 1, 2026, at which point the Exchange would revert back to the
ORF methodology and rate ($0.0004 per contract side) that was in effect
prior to this rule change.\20\
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\20\ The Exchange proposes to reconsider the sunset date in 2026
and determine whether to proceed with the proposed ORF structure at
that time.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\21\ Specifically,
[[Page 22800]]
the Exchange believes the proposed rule change is consistent with
Section 6(b)(4) of the Act,\22\ which provides that Exchange rules may
provide for the equitable allocation of reasonable dues, fees, and
other charges among its members, and other persons using its
facilities. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \23\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(4).
\23\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed ORF to be assessed on January 2,
2026, is reasonable, equitable and not unfairly discriminatory for
various reasons. First, the Exchange believes that continuing to assess
only Customers an ORF is reasonable because Customer transactions
account for a material portion of MRX's Options Regulatory Cost.\24\ A
large portion of the Options Regulatory Cost relates to Customer
allocation because obtaining Customer information may be more time
intensive. For example, non-Customer market participants are subject to
various regulatory and reporting requirements which provides the
Exchange certain data with respect to these market participants. In
contrast, Customer information is known by Members of the Exchange and
is not readily available to MRX.\25\ The Exchange may have to take
additional steps to understand the facts surrounding particular trades
involving a Customer which may require requesting such information from
a broker-dealer. Further, Customers require more Exchange regulatory
services based on the amount of options business they conduct. For
example, there are Options Regulatory Costs associated with main office
and branch office examinations (e.g., staff expenses), as well as
investigations into Customer complaints and the terminations of
registered persons. As a result, the Options Regulatory Costs
associated with administering the Customer component of the Exchange's
overall regulatory program are materially higher than the Options
Regulatory Costs associated with administering the non-Customer
component when coupled with the amount of volume attributed to such
Customer transactions. Utilizing the new regression model, and
assumptions in the proposal, it appears that MRX's Customer regulation
occurs to a large extent on Exchange. Utilizing the new regression
model, and assumptions in the proposal, the Exchange does not believe
that significant Options Regulatory Costs result from activity
attributed to Customers that may occur across options markets. To that
end, with this proposal, the amount of Options Regulatory Cost
allocated to on-exchange Customer transactions is significant. Also,
with respect to Customer transactions, options volume continues to
surpass volume from other options participants. Additionally, there are
rules in the Exchange's Rulebook that deal exclusively with Customer
transactions, such as rules involving doing business with a Customer,
which would not apply to Firm Proprietary and Broker-Dealer
Transactions.\26\ For these reasons, regulating Customer trading
activity is ``much more labor-intensive'' and therefore, more costly.
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\24\ The Exchange notes that the regulatory costs relating to
monitoring Members with respect to Customer trading activity are
generally higher than the regulatory costs associated with Members
that do not engage in customer trading activity, which tends to be
more automated and less labor-intensive. By contrast, regulating
Members that engage in Customer trading activity is generally more
labor intensive and requires a greater expenditure of human and
technical resources as the Exchange needs to review not only the
trading activity on behalf of Customers, but also the Member's
relationship with its Customers via more labor-intensive exam-based
programs. 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 of the regulatory program.
\25\ The Know Your Customer or ``KYC'' provision is the
obligation of the broker-dealer.
\26\ See MRX Options 10 Rules.
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Second, while the Exchange acknowledges that there is a cost to
regulate Market Makers, unlike other market participants, Market Makers
have various regulatory requirements with respect to quoting as
provided for in Options 2, Section 4. Specifically, Market Makers have
certain quoting requirements with respect to their assigned options
series as provided in Options 2, Section 5. Primary Market Makers are
obligated to quote in the Opening Process and intra-day.\27\
Additionally, Market Makers may enter quotes in the Opening Process to
open an option series and they are required to quote intra-day.\28\
Further, unlike other market participants, Primary Market Makers and
Market Makers have obligations to compete with other Market Makers to
improve the market in all series of options classes to which the Market
Maker is appointed and to update market quotations in response to
changed market conditions in all series of options classes to which the
Market Maker is appointed.\29\ Also, Primary Market Makers and Market
Makers incur other costs imposed by the Exchange related to their
quoting obligations in addition to other fees paid by other market
participants. Market Makers are subject to a number of fees, unlike
other market participants. Market Makers pay CMM Trading Right Fees
\30\ in addition to other fees paid by other market participants. These
liquidity providers are critical market participants in that they are
the only market participants that are required to provide liquidity to
MRX and are necessary for opening the market. Excluding Market Maker
transactions from ORF allows these market participants to manage their
costs and consequently their business model more effectively thus
enabling them to better allocate resources to other technologies that
are necessary to manage risk and capacity to ensure that these market
participants continue to compete effectively on MRX in providing tight
displayed quotes which in turn benefits markets generally and market
participants specifically. Permitting these market participants to
utilize their resources to quote tighter in the market. Tighter quotes
benefits Customers as well as other market participants who interact
with that liquidity. Finally, the Exchange notes that Market Makers may
transact orders in addition to submitting quotes on the Exchange. This
proposal would except orders submitted by Market Makers, in addition to
quotes, for purposes of ORF. Market Makers utilize orders in their
assigned options series to sweep the order book. The Exchange believes
the quantity of orders utilized by Market Makers in their assigned
series is de minimis. In their unassigned options series, Market Makers
utilize orders to hedge their risk or respond to auctions. The Exchange
notes that the number of orders submitted by Market Makers in their
unassigned options series are far below the cap \31\ and therefore de
minimis.
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\27\ See MRX Options 3, Section 8 and Options 2, Section 5.
\28\ Id.
\29\ See MRX Options 2, Section 4(b)(1) and (3).
\30\ See MRX Options 7, Section 6, B.
\31\ See MRX Options 2, Section 6. The total number of contracts
executed during a quarter by a Market Maker in options classes to
which it is not appointed may not exceed twenty-five percent (25%)
of the total number of contracts traded. In the Exchange's
experience, Market Maker's are generally below the 25% cap.
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Additionally, while the Exchange acknowledges that there is a cost
to regulate Firm Proprietary and Broker-Dealer transactions, the
Exchange notes that these market participants do not entail significant
volume when compared to Customer transactions. The Exchange notes that
Firm Proprietary
[[Page 22801]]
and Broker-Dealer market participants are more sophisticated. There are
not the same protections in place for Firm Proprietary and Broker-
Dealer Transactions as compared to Customer transactions. The
regulation of Firm Proprietary and Broker-Dealer transactions is less
resource intensive than the regulation of Customer transactions and
accounts for a small percentage of Options Regulatory Costs.
Third, assessing ORF on Customer executions that occur on MRX is
reasonable, equitable and not unfairly discriminatory because it will
avoid overlapping ORFs that would otherwise be assessed by MRX and
other options exchanges that also assess an ORF. With this proposal,
Customers executions that occur on other exchanges would no longer be
subject to an MRX ORF. Further, the Exchange believes that collecting
82% of Options Regulatory Cost is appropriate and correlates to the
degree of regulatory responsibility and Options Regulatory Cost borne
by the Exchange with respect to Customer transactions. The Exchange's
proposal continues to ensure that Options Regulatory Revenue, in
combination with other regulatory fees and fines, does not exceed
Options Regulatory Costs. Fines collected by the Exchange in connection
with a disciplinary matter will continue to offset Options Regulatory
Cost. Capping ORF collected at 82% of Options Regulatory Cost,
commencing January 2, 2026, is reasonable, equitable and not unfairly
discriminatory as the Options Regulatory Revenue collected will offset
the corresponding Options Regulatory Cost associated with on-exchange
Customer transactions. The Exchange will review the ORF Regulatory
Revenue and would amend the ORF if it finds that its ORF Regulatory
Revenue exceeds its projections.\32\
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\32\ MRX would submit a rule change to the Commission to amend
ORF rates.
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The proposed sunset date of February 1, 2026 is reasonable,
equitable and not unfairly discriminatory. If all options exchanges
have adopted a similar ORF model, the Exchange notes that it would not
sunset the proposal on February 1, 2026. The Exchange proposes to
reconsider the sunset date in early 2026 and determine whether to
proceed with the proposed ORF structure at that time.
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 intra-market competition not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
changes to ORF do not impose an undue burden on inter-market
competition because ORF is a regulatory fee that supports regulation in
furtherance of the purposes of the Act. The Exchange notes, however,
the proposed change is not designed to address any competitive issues.
The Exchange is obligated to ensure that the amount of ORF Regulatory
Revenue, in combination with its other regulatory fees and fines, does
not exceed ORF Regulatory Cost.
Continuing to assess ORF only on Customer executions that occur on
MRX does not impose an undue burden on intra-market competition.
Customer transactions account for a large portion of the Exchange's
surveillance expense. With respect to Customer transactions, options
volume continues to surpass volume from other options participants.
Additionally, there are rules in the Exchange's Rulebook that deal
exclusively with Customer transactions, such as rules involving doing
business with a Customer, which would not apply to Non-Customer
transactions.\33\ For these reasons, regulating Customer trading
activity is ``much more labor-intensive'' and therefore, more costly.
Further, the Exchange believes that a large portion of the Options
Regulatory Cost relates to Customer allocation because obtaining
Customer information may be more time intensive. For example, non-
Customer market participants are subject to various regulatory and
reporting requirements which provides the Exchange certain data with
respect to these market participants. In contrast, Customer information
is known by Members of the Exchange and is not readily available to
MRX.\34\ The Exchange may have to take additional steps to understand
the facts surrounding particular trades involving a Customer which may
require requesting such information from a broker-dealer. Further,
Customers require more Exchange regulatory services based on the amount
of options business they conduct. For example, there are Options
Regulatory Costs associated with main office and branch office
examinations (e.g., staff expenses), as well as investigations into
Customer complaints and the terminations of registered persons. As a
result, the Options Regulatory Costs associated with administering the
Customer component of the Exchange's overall regulatory program are
materially higher than the Options Regulatory Costs associated with
administering the non-Customer component when coupled with the amount
of volume attributed to such Customer transactions. Not attributing
significant Options Regulatory Costs to Customers for activity that may
occur across options markets does not impose an undue burden on intra-
market competition because the data in the regression model
demonstrates that MRX's Customer regulation occurs to a large extent on
Exchange.
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\33\ See MRX Options 10 Rules.
\34\ The Know Your Customer or ``KYC'' provision is the
obligation of the broker-dealer.
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The Exchange believes that not assessing ORF on Market Makers does
not impose an undue burden on intra-market competition because these
liquidity providers are critical market participants in that they are
the only market participants that are required to provide liquidity to
MRX and are necessary for opening the market. Excluding Market Maker
transactions from ORF does not impose an intra-market burden on
competition, rather it allows these market participants to manage their
costs and consequently their business model more effectively thus
enabling them to better allocate resources to other technologies that
are necessary to manage risk and capacity to ensure that these market
participants continue to compete effectively on MRX in providing tight
displayed quotes which in turn benefits markets generally and market
participants specifically. Unlike other market participants, Market
Makers have various regulatory requirements with respect to quoting as
provided for in Options 2, Section 4. Specifically, Market Makers have
certain quoting requirements with respect to their assigned options
series as provided in Options 2, Section 5. Primary Market Makers are
obligated to quote in the Opening Process and intra-day.\35\
Additionally, Market Makers may enter quotes in the Opening Process to
open an option series and they are required to quote intra-day.\36\
Further, unlike other market participants, Primary Market Makers and
Market Makers have obligations to compete with other Market Makers to
improve the market in all series of options classes to which the Market
Maker is appointed and to update market quotations in response to
changed market conditions in all series of options classes to which the
Market Maker is appointed.\37\ Primary Market Makers and Market Makers
incur other costs imposed by the Exchange related to their quoting
obligations in addition to other fees paid by other market
[[Page 22802]]
participants. Market Makers are subject to a number of fees, unlike
other market participants. Market Makers pay CMM Trading Right Fees
\38\ in addition to other fees paid by other market participants.
Finally, the Exchange notes that Market Makers may transact orders on
the Exchange in addition to submitting quotes. The Exchange's proposal
to except orders submitted by Market Makers, in addition to quotes, for
purposes of ORF does not impose an undue burden on intra-market
competition because Market Makers utilize orders in their assigned
options series to sweep the order book. Further, the Exchange believes
the quantity of orders utilized by Market Makers in their assigned
series is de minimis. In their unassigned options series, Market Makers
utilize orders to hedge their risk or respond to auctions. The Exchange
notes that the number of orders submitted by Market Makers in their
unassigned options series are far below the cap \39\ and therefore de
minimis.
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\35\ See MRX Options 3, Section 8 and Options 2, Section 5.
\36\ Id.
\37\ See MRX Options 2, Section 4(b)(1) and (3).
\38\ See MRX Options 7, Section 6, B.
\39\ See MRX Options 2, Section 6(b)(1) and (2). The total
number of contracts executed during a quarter by a Competitive
Market Maker in options classes to which it is not appointed may not
exceed twenty-five percent (25%) of the total number of contracts
traded by such Competitive Market Maker in classes to which it is
appointed and with respect to which it was quoting pursuant to
Options 2, Section 5(e)(1). The total number of contracts executed
during a quarter by a Primary Market Maker in options classes to
which it is not appointed may not exceed twenty-five percent (25%)
of the total number of contracts traded per each Primary Market
Maker Membership.
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The Exchange believes that not assessing ORF on Firm Proprietary
and Broker-Dealer market participants does not impose an undue burden
on intra-market competition because the regulation of Firm Proprietary
and Broker-Dealer transactions is less resource intensive than the
regulation of Customer transactions. The volume generated from Firm
Proprietary and Broker-Dealer transactions does not entail significant
volume when compared to Customer transactions. Therefore, excluding
Firm Proprietary and Broker-Dealer transactions from ORF does not
impose an undue burden on intra-market competition as Customer
transactions account for a material portion of MRX's Options Regulatory
Cost.\40\
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\40\ The Exchange notes that the regulatory costs relating to
monitoring Members with respect to customer trading activity are
generally higher than the regulatory costs associated with Members
that do not engage in customer trading activity, which tends to be
more automated and less labor-intensive. By contrast, regulating
Members that engage in customer trading activity is generally more
labor intensive and requires a greater expenditure of human and
technical resources as the Exchange needs to review not only the
trading activity on behalf of customers, but also the Member's
relationship with its customers via more labor-intensive exam-based
programs. 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 of the regulatory program.
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The Exchange's proposal to assess ORF only on Customer executions
that occur on MRX does not impose an intra-market burden on competition
because the amount of activity surveilled across exchanges is small
when compared to the overall number of Exchange rules that are
surveilled by MRX for on-Exchange activity. Limiting the amount of ORF
assessed to activity that occurs on MRX avoids overlapping ORFs that
would otherwise be assessed by MRX and other options exchanges that
also assess an ORF. Further, capping ORF collected at 82% of Options
Regulatory Cost commencing January 2, 2026, does not impose an intra-
market burden on competition as this collection accounts for the
collection only on Customer executions. The Exchange will review the
ORF Regulatory Revenue and would amend the ORF if it finds that its ORF
Regulatory Revenue exceeds its projections.\41\
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\41\ MRX would submit a rule change to the Commission to amend
ORF rates.
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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.
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) of the Act \42\ and paragraph (f) of Rule 19b-4 \43\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\42\ 15 U.S.C. 78s(b)(3)(A).
\43\ 17 CFR 240.19b-4(f).
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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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-MRX-2025-11 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-MRX-2025-11. 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-MRX-2025-11 and should be
submitted on or before June 20, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-09621 Filed 5-28-25; 8:45 am]
BILLING CODE 8011-01-P