82 FR 37946 - Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Revise the Rules Regarding the Exchange's Options Regulatory Fee
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 155 (August 14, 2017)
Federal Register Volume 82, Issue 155 (August 14, 2017)
| Page Range | 37946-37949 | |
| FR Document | 2017-17046 |
[Federal Register Volume 82, Number 155 (Monday, August 14, 2017)] [Notices] [Pages 37946-37949] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-17046] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81341; File No. SR-BX-2017-032] Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Revise the Rules Regarding the Exchange's Options Regulatory Fee DATES: August 8, 2017. 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 July 26, 2017, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``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 proposes to revise BX Rules at Chapter XV, Section 5 to: (i) Make adjustments to the amount of its Options Regulatory Fee (``ORF''); and (ii) more closely reflect the manner in which BX assesses and collects its ORF. While the changes proposed herein are effective upon filing, the Exchange has designated the amendments [sic] become operative on August 1, 2017. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqbx.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 BX initially filed to establish its ORF in 2016.\3\ The Exchange has amended its ORF several times since the inception of this fee.\4\ At this time, the Exchange proposes to: (i) Amend the amount of its ORF; and (ii) revise BX Rules at Chapter XV, Section 5 to more closely reflect the manner in which BX assesses and collects its ORF. --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release Nos. 77053 (February 4, 3016), 81 FR 7163 (February 10, 2016) (SR-BX-2016-007); (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating To Adopt an Options Regulatory Fee). \4\ See Securities Exchange Act Release No. 78361 (July 19, 2016), 81 FR 48485 (July 25, 2016) (SR-BX-2016-043). --------------------------------------------------------------------------- The Exchange supports a common approach for the assessment and collection of ORF among the various options exchanges that assess such a fee. Furthermore, the Exchange supports guidance from the Commission regarding regulatory cost structures to ensure equal knowledge and treatment among options markets assessing ORF. Proposal 1--Amend the Amount of the ORF The Exchange assesses an ORF of $0.0004 per contract side. The Exchange proposes to increase the ORF from $0.0004 per contract side to $0.0005 per contract side as of August 1, 2017 to account for a reduction in market volume. The Exchange's proposed change to the ORF should balance the Exchange's regulatory cost [sic] against the anticipated revenue. 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 cover a material portion of its regulatory costs, while not exceeding regulatory costs. The Exchange notified its Participants of this ORF adjustment thirty (30) calendar days prior to the proposed operative date.\5\ --------------------------------------------------------------------------- \5\ See Options Trader Alert #2017-54. --------------------------------------------------------------------------- Proposal 2--Reflect the Manner in Which BX Assesses and Collects its ORF Currently, BX assesses its ORF for each Customer option transaction that is either: (1) Executed by a Participant on BX; or (2) cleared by a BX Participant at The Options Clearing Corporation (``OCC'') in the Customer range,\6\ even if the transaction was executed by a non-member of BX, regardless of the exchange on which the transaction occurs.\7\ If the OCC clearing member is a BX Participant, ORF is assessed and collected on all cleared Customer contracts (after adjustment for CMTA \8\); and (2) if the OCC clearing member is not a BX Participant, ORF is collected only on the cleared Customer contracts executed at BX, taking into account any CMTA instructions which may result in collecting the ORF from a non-member. --------------------------------------------------------------------------- \6\ Exchange Rules require each member to record the appropriate account origin code on all orders at the time of entry in order to allow the Exchange to properly prioritize and route orders and assess transaction fees pursuant to the Rules of the Exchange and report resulting transactions to OCC. \7\ The Exchange uses reports from OCC to determine the identity of the executing clearing firm and ultimate clearing firm. \8\ 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. --------------------------------------------------------------------------- By way of example, if Broker A, a BX Participant, 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 BX from Broker A's clearing account at OCC via direct debit. While this transaction was executed on a market other than BX, it was cleared by a BX Participant in the Participant's OCC clearing account in the Customer range, therefore there is a regulatory nexus between BX and the transaction. If Broker A was not a BX Participant, then no ORF should be assessed and collected because there is no nexus; the transaction did not execute on BX nor was it cleared by a BX Participant. In the case where a Participant both executes a transaction and clears the transaction, the ORF is assessed to and collected from the Participant only once. In the case where a Participant executes a transaction and a different Participant clears the transaction, the ORF is assessed to and collected from the Participant who clears the transaction and not the Participant who executes the transaction. In the case [[Page 37947]] where a non-member executes a transaction at an away market and a Participant clears the transaction, the ORF is assessed to and collected from the Participant who clears the transaction. In the case where a Participant executes a transaction on BX and a non-member clears the transaction, the ORF is assessed to the Participant that executed the transaction and collected from the non-member who cleared the transaction. In the case where a Participant executes a transaction at an away market and a non-member clears the transaction, the ORF is not assessed to the Participant 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 certain that ORF should apply. Further, the data does not allow the Exchange to identify the Participant 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. For example, a cost related to BX's equity platform, would not be considered an expense that is compared to ORF revenue. An options surveillance employee's cost, however would be an expense that is compared to ORF revenue. The Exchange notes that fines collected by the Exchange in connection with a disciplinary manner offset ORF. The ORF is designed to recover a material portion of the costs to the Exchange of the supervision and regulation of its Participants, 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. Finally, the Exchange notes that it is amending its rule text at Chapter XV, Section 5 to remove certain rule text and include new text to make clear the manner in which ORF is assessed and collected on BX. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \9\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act \10\ 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. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78f(b). \10\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- The Exchange believes the proposed clarifications in the Fee Schedule to the ORF further the objectives of Section 6(b)(4) of the Act and are equitable and reasonable since they expressly describe the Exchange's existing practices regarding the manner in which the Exchange assesses and collects its ORF. Proposal 1--Amend the Amount of the ORF The Exchange believes that increasing the ORF from $0.0004 per contract side to $0.0005 per contract side as of August 1, 2017 is reasonable because the Exchange's collection of ORF needs to be balanced against the amount of regulatory cost collected [sic] by the Exchange. The Exchange believes that the proposed adjustments noted herein will serve to balance the Exchange's regulatory cost against the anticipated regulatory revenue. 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 that increasing the ORF from $0.0004 per contract side to $0.0005 per contract side as of August 1, 2017 is equitable and not unfairly discriminatory because this modest increase will serve to balance the Exchange's regulatory revenue against the anticipated regulatory costs. The ORF seeks to recover the costs of supervising and regulating members, including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. Moreover, the Exchange believes the ORF ensures fairness by assessing fees to those Participants that are directly 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. Participant proprietary transactions) of its regulatory program. The ORF is designed to recover a material portion of the costs of supervising and regulating Participants' 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. In this regard, the Exchange believes that the proposed amount of the fee is reasonable. Proposal 2--Reflect the Manner in Which BX Assesses and Collects Its ORF The Exchange believes it is reasonable and appropriate for the Exchange to charge the ORF for options transactions regardless of the exchange on which the transactions occur. The Exchange has a statutory obligation to enforce compliance by Participants and their associated persons under the Act and the rules of the Exchange and to surveil for other manipulative conduct by market participants (including non- members) trading on the Exchange. The Exchange cannot effectively surveil for such conduct without looking at and evaluating activity across all options markets. Many of the Exchange's market surveillance programs require the Exchange to look at and evaluate activity across all options markets, such as surveillance for position limit violations, manipulation, front-running and contrary exercise advice violations/expiring exercise declarations. The Exchange, because it lacks access to [[Page 37948]] information on the identity of the entering firm for executions that occur on away markets, believes it is appropriate to assess the ORF on its Participant's clearing activity, based on information the Exchange receives from OCC, including for away market activity. Among other reasons, doing so better and more accurately captures activity that occurs away from the Exchange over which the Exchange has a degree of regulatory responsibility. In so doing, the Exchange believes that assessing ORF on Participant clearing firms in certain instances equitably distributes the collection of ORF in a fair and reasonable manner. Also, the Exchange and the other options exchanges are required to populate a consolidated options audit trail (``COATS'') \11\ system in order to surveil a Participant's activities across markets.\12\ --------------------------------------------------------------------------- \11\ COATS effectively enhances intermarket options surveillance by enabling the options exchanges to reconstruct the market promptly to effectively surveil certain rules. \12\ In addition to its own surveillance programs, the Exchange works with other SROs and exchanges on intermarket surveillance related issues. Through its participation in the Intermarket Surveillance Group (``ISG''), the Exchange shares information and coordinates inquiries and investigations with other exchanges designed to address potential intermarket manipulation and trading abuses. The Exchange's participation in ISG helps it to satisfy the requirement that it has coordinated surveillance with markets on which security futures are traded and markets on which any security underlying security futures are traded to detect manipulation and insider trading. See Section 6(h)(3)(I) of the Act. ISG is an industry organization formed in 1983 to coordinate intermarket surveillance among the SROs by co-operatively sharing regulatory information pursuant to a written agreement between the parties. The goal of the ISG's information sharing is to coordinate regulatory efforts to address potential intermarket trading abuses and manipulations. --------------------------------------------------------------------------- The Exchange believes that assessing the ORF to each Exchange member for options transactions cleared by OCC in the Customer range where the execution occurs on another exchange and is cleared by a BX member is an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. The ORF is collected by OCC on behalf of BX from Exchange clearing members for all Customer transactions they clear or from non- members for all Customer transactions they clear that were executed on BX. The Exchange believes that this collection practice is reasonable and appropriate because higher fees are assessed to those members that require more Exchange regulatory services based on the amount of Customer options business they conduct. Regulating Customer trading activity is more labor intensive and requires greater expenditure of human and technical resources than regulating non-Customer trading activity. Surveillance, regulation and examination of non-Customer trading activity generally 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 anticipated to be typically higher than the costs associated with administering the non-Customer component of its regulatory program. The Exchange proposes assessing higher fees to those members that will require more Exchange regulatory services based on the amount of Customer options business they conduct. Additionally, the dues and fees paid by members go into the general funds of the Exchange, a portion of which is used to help pay the costs of regulation. The Exchange has in place a regulatory structure to surveil, conduct examinations and monitor the marketplace for violations of Exchange Rules. The ORF assists the Exchange to fund the cost of this regulation of the marketplace. 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. The ORF is not intended to have any impact on competition. Rather, it is designed to enable the Exchange to recover a material portion of the Exchange's cost related to its regulatory activities. 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. 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.\13\ --------------------------------------------------------------------------- \13\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- 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. 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 CommentsUse 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-BX-2017-032 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-BX-2017-032. 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 Web site (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 Web site 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; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-BX-2017-032, and should be submitted on or before September 5, 2017. [[Page 37949]] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\ --------------------------------------------------------------------------- \14\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-17046 Filed 8-11-17; 8:45 am] BILLING CODE 8011-01-P
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information that you wish to make II. Self-Regulatory Organization’s its regulatory costs, while not exceeding
available publicly. All submissions Statement of the Purpose of, and regulatory costs.
should refer to File Number SR–DTC– Statutory Basis for, the Proposed Rule The Exchange notified its Participants
2017–014, SR–FICC–2017–017, or SR– Change of this ORF adjustment thirty (30)
NSCC–2017–013 and should be calendar days prior to the proposed
submitted on or before September 5, In its filing with the Commission, the operative date.5
2017. Exchange included statements
concerning the purpose of and basis for Proposal 2—Reflect the Manner in
For the Commission, by the Division of the proposed rule change and discussed Which BX Assesses and Collects its ORF
Trading and Markets, pursuant to delegated any comments it received on the
authority.19
Currently, BX assesses its ORF for
proposed rule change. The text of these each Customer option transaction that is
Eduardo A. Aleman, statements may be examined at the either: (1) Executed by a Participant on
Assistant Secretary. places specified in Item IV below. The BX; or (2) cleared by a BX Participant
[FR Doc. 2017–17043 Filed 8–11–17; 8:45 am] Exchange has prepared summaries, set at The Options Clearing Corporation
BILLING CODE 8011–01–P forth in sections A, B, and C below, of (‘‘OCC’’) in the Customer range,6 even if
the most significant aspects of such the transaction was executed by a non-
statements. member of BX, regardless of the
SECURITIES AND EXCHANGE exchange on which the transaction
COMMISSION A. Self-Regulatory Organization’s
occurs.7 If the OCC clearing member is
Statement of the Purpose of, and the
a BX Participant, ORF is assessed and
Statutory Basis for, the Proposed Rule
[Release No. 34–81341; File No. SR–BX– collected on all cleared Customer
Change
2017–032] contracts (after adjustment for CMTA 8);
1. Purpose and (2) if the OCC clearing member is
Self-Regulatory Organizations; not a BX Participant, ORF is collected
NASDAQ BX, Inc.; Notice of Filing and BX initially filed to establish its ORF only on the cleared Customer contracts
Immediate Effectiveness of Proposed in 2016.3 The Exchange has amended its executed at BX, taking into account any
Rule Change To Revise the Rules ORF several times since the inception of CMTA instructions which may result in
Regarding the Exchange’s Options this fee.4 At this time, the Exchange collecting the ORF from a non-member.
Regulatory Fee proposes to: (i) Amend the amount of its By way of example, if Broker A, a BX
ORF; and (ii) revise BX Rules at Chapter Participant, routes a Customer order to
DATES: August 8, 2017. XV, Section 5 to more closely reflect the CBOE and the transaction executes on
Pursuant to Section 19(b)(1) of the manner in which BX assesses and CBOE and clears in Broker A’s OCC
Securities Exchange Act of 1934 collects its ORF. Clearing account, ORF will be collected
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2 The Exchange supports a common by BX from Broker A’s clearing account
notice is hereby given that on July 26, approach for the assessment and at OCC via direct debit. While this
2017, NASDAQ BX, Inc. (‘‘BX’’ or collection of ORF among the various transaction was executed on a market
‘‘Exchange’’) filed with the Securities options exchanges that assess such a fee. other than BX, it was cleared by a BX
and Exchange Commission (‘‘SEC’’ or Furthermore, the Exchange supports Participant in the Participant’s OCC
‘‘Commission’’) the proposed rule guidance from the Commission clearing account in the Customer range,
change as described in Items I, II, and regarding regulatory cost structures to therefore there is a regulatory nexus
III, below, which Items have been ensure equal knowledge and treatment between BX and the transaction. If
prepared by the Exchange. The among options markets assessing ORF. Broker A was not a BX Participant, then
Commission is publishing this notice to no ORF should be assessed and
solicit comments on the proposed rule Proposal 1—Amend the Amount of the
ORF collected because there is no nexus; the
change from interested persons. transaction did not execute on BX nor
I. Self-Regulatory Organization’s The Exchange assesses an ORF of was it cleared by a BX Participant.
Statement of the Terms of Substance of $0.0004 per contract side. The Exchange In the case where a Participant both
the Proposed Rule Change proposes to increase the ORF from executes a transaction and clears the
$0.0004 per contract side to $0.0005 per transaction, the ORF is assessed to and
The Exchange proposes to revise BX contract side as of August 1, 2017 to collected from the Participant only
Rules at Chapter XV, Section 5 to: (i) account for a reduction in market once. In the case where a Participant
Make adjustments to the amount of its volume. The Exchange’s proposed executes a transaction and a different
Options Regulatory Fee (‘‘ORF’’); and change to the ORF should balance the Participant clears the transaction, the
(ii) more closely reflect the manner in Exchange’s regulatory cost [sic] against ORF is assessed to and collected from
which BX assesses and collects its ORF. the anticipated revenue. The Exchange the Participant who clears the
While the changes proposed herein regularly reviews its ORF to ensure that transaction and not the Participant who
are effective upon filing, the Exchange the ORF, in combination with its other executes the transaction. In the case
has designated the amendments [sic] regulatory fees and fines, does not
become operative on August 1, 2017. exceed regulatory costs. The Exchange 5 See Options Trader Alert #2017–54.
The text of the proposed rule change believes this adjustment will permit the 6 Exchange Rules require each member to record
is available on the Exchange’s Web site the appropriate account origin code on all orders at
Exchange to cover a material portion of the time of entry in order to allow the Exchange to
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at http://nasdaqbx.cchwallstreet.com/, properly prioritize and route orders and assess
at the principal office of the Exchange, 3 See Securities Exchange Act Release Nos. 77053 transaction fees pursuant to the Rules of the
and at the Commission’s Public (February 4, 3016), 81 FR 7163 (February 10, 2016) Exchange and report resulting transactions to OCC.
Reference Room. (SR–BX–2016–007); (Notice of Filing and 7 The Exchange uses reports from OCC to
Immediate Effectiveness of Proposed Rule Change determine the identity of the executing clearing
Relating To Adopt an Options Regulatory Fee). firm and ultimate clearing firm.
19 17 CFR 200.30–3(a)(12). 4 See Securities Exchange Act Release No. 78361 8 CMTA or Clearing Member Trade Assignment is
1 15 U.S.C. 78s(b)(1). (July 19, 2016), 81 FR 48485 (July 25, 2016) (SR– a form of ‘‘give-up’’ whereby the position will be
2 17 CFR 240.19b–4. BX–2016–043). assigned to a specific clearing firm at OCC.
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where a non-member executes a submitting a fee change filing to the Participants that are directly based on
transaction at an away market and a Commission. the amount of Customer options
Participant clears the transaction, the Finally, the Exchange notes that it is business they conduct. Regulating
ORF is assessed to and collected from amending its rule text at Chapter XV, Customer trading activity is much more
the Participant who clears the Section 5 to remove certain rule text and labor intensive and requires greater
transaction. In the case where a include new text to make clear the expenditure of human and technical
Participant executes a transaction on BX manner in which ORF is assessed and resources than regulating non-customer
and a non-member clears the collected on BX. trading activity, which tends to be more
transaction, the ORF is assessed to the automated and less labor-intensive. As a
2. Statutory Basis
Participant that executed the transaction result, the costs associated with
and collected from the non-member The Exchange believes that its administering the Customer component
who cleared the transaction. In the case proposal is consistent with Section 6(b) of the Exchange’s overall regulatory
where a Participant executes a of the Act 9 in general, and furthers the program are materially higher than the
transaction at an away market and a objectives of Sections 6(b)(4) and 6(b)(5) costs associated with administering the
non-member clears the transaction, the of the Act 10 in particular, in that it non-Customer component (e.g.
ORF is not assessed to the Participant provides for the equitable allocation of Participant proprietary transactions) of
who executed the transaction or reasonable dues, fees and other charges its regulatory program.
collected from the non-member who among members and issuers and other The ORF is designed to recover a
cleared the transaction because the persons using its facility and is not material portion of the costs of
Exchange does not have access to the designed to permit unfair supervising and regulating Participants’
data to make absolutely certain that ORF discrimination between customers, Customer options business including
should apply. Further, the data does not issuers, brokers, or dealers. performing routine surveillances,
allow the Exchange to identify the The Exchange believes the proposed investigations, examinations, financial
Participant executing the trade at an clarifications in the Fee Schedule to the monitoring, and policy, rulemaking,
away market. ORF further the objectives of Section interpretive, and enforcement activities.
6(b)(4) of the Act and are equitable and The Exchange will monitor the amount
ORF Revenue and Monitoring of ORF reasonable since they expressly describe of revenue collected from the ORF to
The Exchange monitors the amount of the Exchange’s existing practices ensure that it, in combination with its
revenue collected from the ORF to regarding the manner in which the other regulatory fees and fines, does not
ensure that it, in combination with other Exchange assesses and collects its ORF. exceed the Exchange’s total regulatory
regulatory fees and fines, does not costs. The Exchange has designed the
Proposal 1—Amend the Amount of the
exceed regulatory costs. In determining ORF to generate revenues that, when
ORF
whether an expense is considered a combined with all of the Exchange’s
The Exchange believes that increasing other regulatory fees, will be less than
regulatory cost, the Exchange reviews the ORF from $0.0004 per contract side
all costs and makes determinations if or equal to the Exchange’s regulatory
to $0.0005 per contract side as of August costs, which is consistent with the
there is a nexus between the expense 1, 2017 is reasonable because the
and a regulatory function. For example, Commission’s view that regulatory fees
Exchange’s collection of ORF needs to be used for regulatory purposes and not
a cost related to BX’s equity platform, be balanced against the amount of to support the Exchange’s business side.
would not be considered an expense regulatory cost collected [sic] by the In this regard, the Exchange believes
that is compared to ORF revenue. An Exchange. The Exchange believes that that the proposed amount of the fee is
options surveillance employee’s cost, the proposed adjustments noted herein reasonable.
however would be an expense that is will serve to balance the Exchange’s
compared to ORF revenue. The regulatory cost against the anticipated Proposal 2—Reflect the Manner in
Exchange notes that fines collected by regulatory revenue. The Exchange Which BX Assesses and Collects Its ORF
the Exchange in connection with a regularly reviews its ORF to ensure that The Exchange believes it is reasonable
disciplinary manner offset ORF. the ORF, in combination with its other and appropriate for the Exchange to
The ORF is designed to recover a regulatory fees and fines, does not charge the ORF for options transactions
material portion of the costs to the exceed regulatory costs. regardless of the exchange on which the
Exchange of the supervision and The Exchange believes that increasing transactions occur. The Exchange has a
regulation of its Participants, including the ORF from $0.0004 per contract side statutory obligation to enforce
performing routine surveillances, to $0.0005 per contract side as of August compliance by Participants and their
investigations, examinations, financial 1, 2017 is equitable and not unfairly associated persons under the Act and
monitoring, and policy, rulemaking, discriminatory because this modest the rules of the Exchange and to surveil
interpretive, and enforcement activities. increase will serve to balance the for other manipulative conduct by
The Exchange believes that revenue Exchange’s regulatory revenue against market participants (including non-
generated from the ORF, when the anticipated regulatory costs. The members) trading on the Exchange. The
combined with all of the Exchange’s ORF seeks to recover the costs of Exchange cannot effectively surveil for
other regulatory fees, will cover a supervising and regulating members, such conduct without looking at and
material portion, but not all, of the including performing routine evaluating activity across all options
Exchange’s regulatory costs. The surveillances, investigations, markets. Many of the Exchange’s market
Exchange will continue to monitor the surveillance programs require the
sradovich on DSK3GMQ082PROD with NOTICES
examinations, financial monitoring, and
amount of revenue collected from the policy, rulemaking, interpretive, and Exchange to look at and evaluate
ORF to ensure that it, in combination enforcement activities. Moreover, the activity across all options markets, such
with its other regulatory fees and fines, Exchange believes the ORF ensures as surveillance for position limit
does not exceed regulatory costs. If the fairness by assessing fees to those violations, manipulation, front-running
Exchange determines regulatory and contrary exercise advice violations/
revenues exceed regulatory costs, the 9 15 U.S.C. 78f(b). expiring exercise declarations. The
Exchange will adjust the ORF by 10 15 U.S.C. 78f(b)(4) and (5). Exchange, because it lacks access to
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![Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37949
For the Commission, by the Division of concerning the purpose of and basis for on July 6, 2017,4 and those that the
Trading and Markets, pursuant to delegated the proposed rule change and discussed other options exchanges intend to file.
authority.14 any comments it received on the
Eduardo A. Aleman, Calculation of Theoretical Price Using a
proposed rule change. The text of these Third Party Provider
Assistant Secretary. statements may be examined at the
[FR Doc. 2017–17046 Filed 8–11–17; 8:45 am] places specified in Item IV below. The Under the harmonized rule, when
BILLING CODE 8011–01–P Exchange has prepared summaries, set reviewing a transaction as potentially
forth in sections A, B, and C below, of erroneous, the Exchange needs to first
the most significant aspects of such determine the ‘‘Theoretical Price’’ of the
SECURITIES AND EXCHANGE statements. option, i.e., the Exchange’s estimate of
COMMISSION the correct market price for the option.
A. Self-Regulatory Organization’s Pursuant to Rule 1092, if the applicable
[Release No. 34–81352; File No. SR–Phlx– Statement of the Purpose of, and option series is traded on at least one
2017–66]
Statutory Basis for, the Proposed Rule other options exchange, then the
Self-Regulatory Organizations; Change Theoretical Price of an option series is
NASDAQ PHLX LLC; Notice of Filing the last national best bid (‘‘NBB’’) just
1. Purpose prior to the trade in question with
and Immediate Effectiveness of
Proposed Rule Change To Amend Rule The Exchange and other options respect to an erroneous sell transaction
1092, Nullification and Adjustment of exchanges recently adopted a new, or the last national best offer (‘‘NBO’’)
Options Transactions Including harmonized rule related to the just prior to the trade in question with
Obvious Errors adjustment and nullification of respect to an erroneous buy transaction
unless one of the exceptions described
erroneous options transactions,
August 8, 2017. below exists. Thus, whenever the
including a specific provision related to
Pursuant to Section 19(b)(1) of the Exchange has a reliable NBB or NBO, as
coordination in connection with large-
Securities Exchange Act of 1934 (the applicable, just prior to the transaction,
scale events involving erroneous
‘‘Act’’),1 and Rule 19b–4 thereunder,2 then the Exchange uses this NBB or
options transactions.3 The Exchange
notice is hereby given that on August 3, NBO as the Theoretical Price.
believes that the changes the options The Rule also contains various
2017, NASDAQ PHLX LLC (‘‘Phlx’’ or exchanges implemented with the new,
‘‘Exchange’’) filed with the Securities provisions governing specific situations
harmonized rule have led to increased where the NBB or NBO is not available
and Exchange Commission transparency and finality with respect to
(‘‘Commission’’) the proposed rule or may not be reliable. Specifically, the
the adjustment and nullification of Rule specifies situations in which there
change as described in Items I and II erroneous options transactions.
below, which Items have been prepared are no quotes or no valid quotes for
However, as part of the initial initiative, comparison purposes, when the
by the Exchange. The Commission is
the Exchange and other options national best bid or offer (‘‘NBBO’’) is
publishing this notice to solicit
exchanges deferred a few specific determined to be too wide to be reliable,
comments on the proposed rule change
matters for further discussion. and at the open of trading on each
from interested persons.
Specifically, as described in the Initial trading day. In each of these
I. Self-Regulatory Organization’s Filing, the Exchange and all other circumstances, in turn, because the NBB
Statement of the Terms of Substance of options exchanges have been working to or NBO is not available or is deemed to
the Proposed Rule Change further improve the review of be unreliable, the Exchange determines
The Exchange proposes to amend potentially erroneous transactions as Theoretical Price. Under the current
Rule 1092, Nullification and well as their subsequent adjustment by Rule, when determining Theoretical
Adjustment of Options Transactions creating an objective and universal way Price, Exchange personnel generally
including Obvious Errors. to determine Theoretical Price in the consult and refer to data such as the
While these amendments are effective event a reliable NBBO is not available. prices of related series, especially the
upon filing, the Exchange has Because this initiative required closest strikes in the option in question.
designated the proposed amendments to additional exchange and industry Exchange personnel may also take into
be operative on a date that is within discussion as well as additional time for account the price of the underlying
ninety (90) days after the Commission development and implementation, the security and the volatility
approved a similar proposal filed by Exchange and the other options characteristics of the option as well as
Bats BZX on July 6, 2017. exchanges determined to proceed with historical pricing of the option and/or
The text of the proposed rule change the Initial Filing and to undergo a similar options. Although the Rule is
is available on the Exchange’s Web site secondary initiative to complete any administered by experienced personnel
at http://nasdaqphlx.cchwallstreet. additional improvements to the and the Exchange believes the process is
com/, at the principal office of the applicable rule. In this filing, the currently appropriate, the Exchange
Exchange, and at the Commission’s Exchange proposes to adopt procedures recognizes that it is also subjective and
Public Reference Room. that will lead to a more objective and could lead to disparate results for a
uniform way to determine Theoretical transaction that spans multiple options
II. Self-Regulatory Organization’s Price in the event a reliable NBBO is not exchanges.
Statement of the Purpose of, and available. In addition to this change, the The Exchange proposes to adopt
Statutory Basis for, the Proposed Rule Commentary .05 to specify how the
sradovich on DSK3GMQ082PROD with NOTICES
Exchange has proposed two additional
Change minor changes to its rules. The Exchange will determine Theoretical
In its filing with the Commission, the Exchange’s proposal mirrors that of Bats Price when required by sub-paragraphs
Exchange included statements BZX, which the Commission approved 4 See Securities Exchange Act Release No. 34–
81084 (July 6, 2017) (granting approval of Bats BZX
14 17 CFR 200.30–3(a)(12). 3 See Securities Exchange Act Release No. 34– proposal), 82 FR 32216 (July 12, 2017); 82 FR 23684
1 15 U.S.C. 78s(b)(1). 74919 (May 8, 2015); 80 FR 27766 (May 14, 2015) (May 23, 2017) (SR–BatsBZX–2017–035) (notice of
2 17 CFR 240.19b–4. (SR–PHLX–2015–43) (the ‘‘Initial Filing’’). filing of Bats BZX proposal).
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Document Created: 2018-10-24 11:51:56
Document Modified: 2018-10-24 11:51:56
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Dates | August 8, 2017. | |
| FR Citation | 82 FR 37946 |
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